MNI BRIEF: Fed Balance Sheet Could Be Trillions Smaller-Warsh

The Federal Reserve should aim for a much smaller balance sheet in order to have a smaller footprint in financial markets and reduce the risk of inflationary bursts like the one experienced after Covid, former Fed Board Governor Kevin Warsh said Friday.

The Fed's balance sheet "is trillions larger than it needs to be. We can't make this change overnight," said Warsh, who is seen as a leading candidate to replace Jerome Powell as Fed chair next year. 

"My recommendation is a smaller balance sheet takes the Fed back to a more manageable size. And interestingly, if you can have a smaller balance sheet, you can have lower interest rates," he said at a Reagan National Economic Forum. (See MNI POLICY: Warsh Could Reshape Fed On Rates, Communication)