By Mark Felsenthal and Pedro da Costa

WASHINGTON, Feb 8 (Reuters) – The U.S. Federal Reserve could sell some assets later this year in an effort to whittle down its bloated balance sheet to avoid inflation, a senior Federal Reserve official said on Monday.

The Fed’s purchases last year of longer-term Treasuries and other debt, undertaken to help revive the economy, were financed by adding cash to the financial system. But leaving large amounts of cash sloshing around as the economy strengthens risks fueling inflation.

“Maybe you get in the second half of 2010 or something like that, if things are going pretty well, maybe then you’d sell a little bit at that point and you’d try to see how the market reacts,” St. Louis Federal Reserve Bank President James Bullard told Reuters in an interview.

The U.S. central bank should try to get its balance sheet, which has ballooned by more than $1 trillion, down to a normal size before the next recession strikes to ensure it has the ammunition it needs to counter a downturn, Bullard said.

After the Fed slashed interest rates to near zero in late 2008, it launched a buying spree that also included mortgage-backed securities and debt issued by housing finance agencies to provide further support for the economy.