The Federal Reserve is working on the mechanics of how to unwind the massive balance sheet it has built up while defending against the global financial crisis, a top central bank official said Thursday.

However, it remains uncertain both how and when the Fed will begin selling off assets held on its balance sheet, which has swelled to more than $2 trillion, according to Thomas Hoenig, the president of the Federal Reserve Bank of Kansas City.

Taking questions from an audience in Kansas City, Mo., Hoenig declined to say whether 2010 would see the Fed begin selling mortgage-backed securities, which the central bank has been buying in a program that has divided Fed officials.

Some Fed officials have argued that the program ought to be scaled back, as economic data shows a strengthening economic recovery taking hold.

Hoenig placed himself in that camp Thursday, projecting U.S. gross domestic product to grow by 3% to 4% in the coming year, while noting that most economic data readings now show the U.S. economic picture improving.

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