The U.S. Federal Reserve must be especially careful when the time comes to raise interest rates because of its bloated balance sheet, Minneapolis Fed President Narayana Kocherlakota said on Tuesday.

Where we are right now is a rather extreme form of where we are at the end of every recession -- trying to figure out when exactly to get this timing right, of ending a period of accommodation, he told a group of business executives in answer to a question from the audience.

I think the difference now, as opposed to other times maybe, is because of the size of the balance sheet which I have stressed, we have to be even more careful than usual in making the right decisions.

When of course that will take place, that's what our job on the FOMC -- the Federal Open Market Committee -- is, to try to make that decision.

The Fed has kept its key interest rate target at near zero since December 2008 and added more than $1 trillion to its balance sheet with purchases of mortgage-backed securities and other assets in order to soften the blow of the worst recession since the 1930s.

Kocherlakota also said the Fed needs to pay special attention to the possibility of tail events, which he described as low probability, high impact occurrences.

(Reporting by Ann Saphir, Editing by Chizu Nomiyama)