Warsh Warns of Shrinking Fed's Trillion-Dollar Balloon

Kevin Warsh has long expressed concerns about the size of the Federal Reserve's balance sheet. At around $6.75 trillion, it is more than seven times its pre-2008 level and over 50% larger than before the COVID pandemic.

The central bank has been shrinking its balance sheet through quantitative tightening (QT), but this process stopped in late 2025 when the Fed began making reserve management purchases to accommodate growing demand for reserves. These purchases are not officially considered quantitative easing, as their purpose is to maintain liquidity levels rather than stimulate the economy.

The result of these purchases has been an increase in total Federal Reserve assets back up to around $6.75 trillion, despite mortgage-backed securities declining to roughly $1.93 trillion.