Federal Reserve Chair Kevin Warsh is forming five independent task forces to re-examine core pillars of how the central bank operates, including a review of the Fed's $6.7 trillion balance sheet that Warsh has criticized for years.
Warsh unveiled the initiative at his June 17 press conference, held after the Federal Open Market Committee voted to hold its benchmark rate steady at 3.5%-3.75%. The balance sheet review lands at a politically charged moment: the Fed abruptly halted quantitative tightening at the end of 2025 and has since been quietly adding reserves back into the financial system.
What happened
The five task forces will scrutinize communications strategy, balance sheet management, data accountability, the inflation framework, and productivity and labor market trends. The balance sheet group will 'review the benefits and risks of the current ample reserves regime and the composition of the balance sheet,' Warsh said — a mandate that goes to the heart of a debate he has waged since dissenting from early quantitative-easing rounds as a Fed governor nearly two decades ago.
'My simple version of this is: Run the printing press a little bit less. Let the balance sheet come down. Let Secretary Bessent handle the fiscal accounts, and in so doing, you can have materially lower interest rates,' Warsh said in a Fox Business interview, laying out a philosophy that ties the balance sheet's size directly to the path of interest rates.
Why it matters
The balance sheet stood at $6.725 trillion for the week ending June 17 — up $13.9 billion from the prior week even as Warsh announced a review aimed at eventually shrinking it. That is roughly triple its pre-2008 level and down from an $8.9 trillion peak in 2022, after the 2022-2025 quantitative tightening campaign trimmed an estimated $2.2 trillion to $2.4 trillion off the balance sheet. The Fed's abrupt pivot away from further shrinkage, after rising government borrowing and the QT unwind squeezed money markets, is the backdrop against which Warsh's task force will operate.
Market impact
The Fed's implementation note was adjusted to say the Open Market Desk should increase Treasury bill purchases 'when appropriate,' a shift Deutsche Bank strategist Steven Zeng called 'a pretty strong signal' on the central bank's thinking. TD Securities strategists said Warsh 'is trying to make a splash by committing to take a hard look at big questions' while still needing to 'sound hawkish in the near term' on rates. Bond and money-market traders are watching closely: any sign the review leads to renewed aggressive runoff raises the risk of a repeat of the September 2019 repo-market spike, when reserve balances fell below banks' preferred liquidity buffers.