Warsh’s Return Revives Tensions Over the Fed’s $6.6 Trillion QE Hangover

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• There is a bit of wiggle room within Fed definition of ample reserves

  80% confidence

• Demand for bank reserves and Fed balance sheet size is determined by banks' regulatory and internal liquidity needs

  80% confidence

• Need new Treasury-Fed accord like 1951 where Fed chair and Treasury secretary describe objective for Fed balance sheet size to markets

  80% confidence

• For now it's status quo, but markets will remain on edge until Warsh makes his views clearer

  80% confidence

• Addition of another balance-sheet hawk on FOMC should help keep check on future asset purchases or reinvestment policies

  80% confidence

• Significantly smaller balance sheet would likely require major shift in Fed's existing bank regulatory framework

  80% confidence

• Aggressive bond buying artificially depressed borrowing rates for extended periods, fanned Wall Street risk-taking and encouraged lawmakers to pile on more debt

  80% confidence

• Run printing press less, let balance sheet come down, let Treasury handle fiscal accounts to achieve materially lower interest rates

  80% confidence

• Kevin Warsh has been very critical of the Fed's balance sheet expansion

  80% confidence

• Fed can move short rate to offset balance sheet actions; shrinking balance sheet on principle allows offsetting rate cuts if long rates increase

  80% confidence

• If Warsh dislikes balance sheet expansion as a way to compress yields, then responsibility falls onto Treasury

  80% confidence