WASHINGTON, July 27 -- The International Monetary Fund (IMF) said on Thursday that the monetary policy effects of U.S. Federal Reserve's balance sheet unwinding are expected to be small.

"Under the announced plan, if normalization were to begin at end-2017, the balance sheet would decline by 318 billion U.S. dollars in 2018 and by 409 billion dollars in 2019," the IMF staff said in its annual report of Article IV consultations with U.S. authorities on the U.S. economy.

"Such a reduction could have a monetary policy impact equivalent to a 22 basis point increase in the federal funds rate over the next two years," the report said.

Given the small monetary effects, the IMF believed "it is appropriate that the normalization of the balance sheet proceeds independently of changes in the federal funds rate and in inflation and employment outcomes," unless the U.S. economy is hit by a significant negative shock.

The Fed last month raised the target range of the federal funds rate by a quarter percentage point to 1-1.25 percent, the fourth rate hike since December 2017, and unveiled a plan to trim its balance sheet later this year.

The Fed's balance sheet has ballooned to around 4.5 trillion U.S. dollars following three rounds of quantitative easing programs to withstand the impact of the 2008 global financial crisis.

The central bank signaled on Wednesday that it would begin unwinding its holdings of U.S. Treasury bonds and other mortgage-backed securities "relatively soon," possibly at its next policy meeting on Sept. 19-20.

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