‍#WalshSaysToCautiouslyShrinkBalanceSheet

Warsh has frequently criticized the Fed's bond purchases, arguing that such purchases undermine the overall financial condition of the economy. Instead, he has advocated for shrinking the Fed's balance sheet.
Following a massive campaign to expand its balance sheet to support the economy during the global financial crisis and the COVID-19 pandemic, the Fed allowed its balance sheet to shrink from levels that reached $9 trillion in 2022 to $6.6 trillion late last year. However, the Fed began expanding its balance sheet again in December to ensure sufficient liquidity in the financial system to keep interest rates within officials' target range.
It is currently unclear whether Warsh will push to end this process.
Analysts argued in a note that Warsh has frequently been critical of the Fed's balance sheet policies, but they believe he would find it easier to be a critic than an agent of change.
Additionally, they noted that to reduce the size of the balance sheet, Warsh would also need to reduce his liabilities, likely through changes to bank liquidity guidelines and regulations.
If Warsh puts too much pressure on the Fed to reduce the money supply, this could lead to funding volatility, broader market volatility, and tighter financial conditions.
Given the difficulty of reducing the Fed's liabilities, we suspect Warsh would prefer easier financial conditions over a smaller Fed bank.
Especially since President Trump will be more concerned with financial conditions than Fed reserves, Warsh "will likely side with Trump."
Warsh, however, said that shrinking the balance sheet would be difficult, especially since the balance sheet is used to manage the Fed's target range.#