TOKYO (MNI) - The U.S. Federal Reserve Board plans to take about five years to whittle down its balance sheet, which became bloated as a result of financial stabilization measures, said James Bullard, president of the Federal Reserve Bank of St. Louis, in an interview with the Nikkei published on Wednesday.

Bullard, a member of the policy-setting Federal Open Market Committee, indicated in the interview on Monday that the Fed will take its time in paring back the assets, which total roughly $2.2 trillion.

But he also mentioned the possibility of selling some assets as early as later this year.

On the economic outlook for the U.S., Bullard cited recovering conditions. And with risks in the economy subsiding, "we've avoided this deflationary scenario that is sort of a part of what happened in Japan," he said, referring to Japan's so-called lost decade of the 1990s.

The biggest factor keeping the U.S. economy from falling into deflationary conditions akin to those in Japan is a bottoming out of consumer spending, Bullard said. But as long as households focus on tackling their debt, a sharp pickup in consumer spending is not likely, he predicted.

"It's not going to go way back up, but it's going to go slowly up this lower level and then it'll go on forward like that," Bullard said.

Precedent has shown that a U.S. interest rate hike usually comes about two and a half to three years after an economic downturn ends.

This means that the next hike may not be in the cards until 2012 or so, but Bullard acknowledged that lessons learned from prolonged low-rate conditions will hold significance for monetary policy decisions.

He said that if economic data improves, full-blown discussions on an interest rate hike could begin in the second half of this year, with the Fed closely monitoring economic data.

At last month's FOMC meeting, Bullard voted to keep U.S. interest rates at nearly zero. But at the same time, he is also believed to be among the committee members wary of inflationary risk.

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