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Warsh Says Fed Can't Rush Balance-Sheet Shrink, Risk Liquidity Crunch

4/25/2026

Summary

Warsh Warns

Fed official Warsh said the Federal Reserve will reduce its presence but cannot quickly shrink its balance sheet without risking a liquidity crunch.
Reporter Nick Timiraos reported Warsh’s plan; Stanford professor Darrell Duffie warned a balance-sheet cut could spark a liquidity crunch.
Colby Smith said Biden administration is expanding credit access, weighing 401(k) regulation changes, and that the Iran war has eroded confidence in the Fed’s ability to control inflation.

Summary

Warsh Criticizes Fed

The Federal Reserve (Fed) balance sheet grew from under $900 billion in August 2008 to almost $9 trillion by March 2022, illustrating unprecedented expansion.
Quantitative tightening reduced the balance sheet to $6.7 trillion as of April 15 2026, still far above Senator Warsh’s preferred $6 trillion level.
In Senate Banking Committee testimony, Senator Warsh called the Fed’s $6 trillion holdings “fiscal policy in disguise,” urged a passive market stance, and recommended tighter Treasury coordination on debt issuance.

Summary

Warsh Urges Tolerance

Warsh suggested the Federal Reserve (Fed) tolerate inflation modestly above its 2% headline PCE target.
The Dallas Fed’s trimmed-mean placed February inflation at 2.3% after dropping outliers like a 384% surge in moving-service prices, while the New York Fed’s model put trend inflation at 3.1%.
Inflation Insights founder Omair Sharif warned the trimmed-mean may miss spikes and urged Warsh to seek congressional funding for BLS data upgrades.

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Warsh Warns

Fed official Warsh said the Federal Reserve will reduce its presence but cannot quickly shrink its balance sheet without risking a liquidity crunch.
Reporter Nick Timiraos reported Warsh’s plan; Stanford professor Darrell Duffie warned a balance-sheet cut could spark a liquidity crunch.
Colby Smith said Biden administration is expanding credit access, weighing 401(k) regulation changes, and that the Iran war has eroded confidence in the Fed’s ability to control inflation.

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