Fed's Balance Sheet Reduction Faces Hurdles, Kashkari Expects Gradual Progress

Challenges to Balance Sheet Reduction

Recently, Fed official Kevin Warsh commented on the challenges of reducing the central bank's balance sheet. He noted that the current size of nearly $7 trillion has gone beyond appropriate limits and has distorted financial markets to some extent.

Gradual Progress Expected

According to insiders, Warsh believes the reduction plan will proceed slowly. He emphasized that the Fed needs to communicate thoroughly with banks and the public before taking concrete actions.

Unclear Reduction Target

While large-scale bond purchases were once seen as a critical tool during the financial crisis, Warsh pointed out that such measures have introduced long-term uncertainty. He further suggested that the balance sheet may not return to pre-2008 crisis levels.