Barclays strategists say that the transition to a smaller balance sheet will require close coordination between the central bank and the Treasury to prevent excessive market volatility. This process will lead to tighter financial conditions. Kevin Warsh, the nominee who previously called for a significant reduction in the $6.6 trillion asset portfolio, may need to offset this tightening with lower policy rates. Barclays strategists Anshul Pradhan, Samuel Earl, and Demi Hu wrote that "balance sh

Barclays strategists stated that the transition to a smaller balance sheet will require close coordination between the central bank and the Treasury to prevent excessive market volatility. This process will lead to tighter financial conditions. Kevin Warsh, the chairman nominee who previously called for a substantial reduction of the $6.6 trillion asset portfolio, may need to offset this tightening with lower policy rates. Barclays strategists Anshul Pradhan, Samuel Earl, and Demi Hu wrote, "Balance sheet normalization will be a multi-year process," adding that "given Warsh's desire to shrink the balance sheet and the fact that Treasury objectives are not always aligned, investors are likely to demand a risk premium during this transition."