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2026-02-18 05:26:55
Wall Street analysts have projected the Fed's balance sheet reduction path should Warsh take office, suggesting multiple avenues for shrinking the $6.6 trillion balance sheet. However, this process is costly and extremely time-consuming. Strategists say available options include easing regulations that encourage banks to hold large amounts of cash reserves at the central bank, shortening the average maturity of the Fed's holdings, ceasing purchases of Treasury bills, or even selling securities directly. A less likely path is to resume quantitative tightening, but the central bank abandoned this process in December and instead purchased Treasury bills to reinject reserves into the system due to increased pressure on the money market caused by increased government borrowing. Regardless of which path the Fed chooses under Warsh's leadership, balance sheet reduction could take several years.
