Federal Reserve Advisor: Waller May Need Five Years to Reduce the Fed’s Balance Sheet

Glonghui, March 26｜Federal Reserve chairman nominee Kevin Warsh wants to significantly reduce the Federal Reserve’s $6.6 trillion balance sheet. According to a top financial economist, he may need more than one term to accomplish this task. Darrell Duffie, a professor at Stanford Graduate School of Business and long-time Federal Reserve advisor, noted in a new paper that if the Federal Reserve wants to greatly reduce its influence in financial markets without causing severe stress, reforms are necessary—including a complete overhaul of bank liquidity requirements and a redesign of the payment system. Once Warsh is confirmed by the U.S. Senate, he can immediately implement certain reforms as long as he has the support of his colleagues. According to Duffie, other reforms could take up to five years, which means the work will continue beyond Warsh’s four-year chairmanship.