TechFlow News, March 3: According to the Financial Times (UK), Kevin Warsh’s plan to shrink the Federal Reserve’s balance sheet will proceed only gradually. As a nominee for Federal Reserve Chair put forward by Donald Trump, Warsh faces resistance in his proposal 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 congressional authority and pointed out that large-scale bond purchases conducted under successive quantitative easing programs have distorted financial markets.
However, insiders revealed that Warsh will not begin adjusting the Fed’s balance sheet until after conducting extensive consultations with banks and the broader public regarding potential impacts. These sources also indicated that he is unlikely to push for restoring the balance sheet to its pre-2008 financial crisis size and will call for internal research and academic conferences on the topic before taking action. Warsh believes the 2008 crisis demonstrated that overreliance on interbank markets poses risks to financial stability and has publicly advocated a “third model” for balance sheet management. Some regional Fed presidents are open to gradually transitioning to this new balance sheet management framework. (Jinshi)
