JPAM: Reducing the Federal Reserve's balance sheet will take patience | June 15, 2026 | The Weekly Brief

The Fed meets this week for Kevin Warsh’s first decision as chair, and with a hold mostly priced in, focus shifts to what he may signal on future balance sheet policy. Chairman Warsh wants to shrink the Fed's balance sheet, which currently sits around $6.7 trillion, to significantly smaller levels over time. He believes the Fed should hold fewer assets so it plays a less interventionist role in markets. Warsh argues that the Fed’s quantitative easing policy has historically helped asset owners more than ordinary Americans. The problem is that the financial system now depends on abundant reserves: banks must hold large liquidity buffers, and record Treasury issuance means private markets may struggle to absorb new bonds the Fed sheds. Unwinding it all without triggering a 2019-style liquidity squeeze or pressure on longer-dated bonds would likely require years of patience.