Kevin Warsh's Balance Sheet Reduction Plan Faces Resistance, Will Only Proceed Slowly

Odaily News Kevin Warsh's attempt to reduce the Federal Reserve's balance sheet will only proceed slowly. As Trump's nominee for Fed Chair, Warsh is facing resistance regarding his plan to scale back one of the Fed's most influential tools. Warsh has repeatedly stated that the Fed's nearly $7 trillion balance sheet reflects its overreach into Congress's domain, noting that the massive bond purchases under various quantitative easing programs have distorted financial markets. However, sources familiar with the matter reveal that Warsh will only begin adjusting the Fed's balance sheet after extensive consultations with banks and the broader public regarding potential impacts. These sources also indicated that he is unlikely to push for the balance sheet size to return to pre-2008 financial crisis levels and will call for internal research and academic conferences to explore related issues before taking action. Warsh also believes that the 2008 crisis showed that over-reliance on the interbank market poses risks to financial stability and has publicly advocated for a "third model" of balance sheet management. Some regional Fed presidents are willing to consider a gradual shift to a new balance sheet management model. (Financial Times)