This has been a momentous year for Wall Street. We’ve watched the Dow Jones Industrial Average (DJINDICES: ^DJI), S&P 500 (SNPINDEX: ^GSPC), and Nasdaq Composite (NASDAQINDEX: ^IXIC) climb to record highs, observed the largest-ever initial public offering, and have borne witness to a rare shift in power at the Federal Reserve.
On May 22, President Donald Trump’s handpicked successor to Jerome Powell, Kevin Warsh, was officially sworn in as the 17th Fed chair. Warsh wasted little time outlining the laundry list of changes he’d like to implement at America’s foremost financial institution. While some of these reforms have taken effect, Warsh has made no progress on his most vocal proposal.
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The Fed’s bloated balance sheet continues to expand
When testifying before the Senate Banking Committee in April, Kevin Warsh outlined several reforms he’d implement. He discussed changing how the Federal Open Market Committee (FOMC) thinks about inflation and has since launched five specialized task forces, one of which reassesses the criteria and modeling for inflation.
Warsh also railed against the use of forward-looking guidance, arguing that it pigeonholes the central bank into specific monetary policy decisions. At his first FOMC meeting as Fed chair in mid-June, Warsh presented a considerably shorter FOMC statement that was devoid of forward-looking guidance on interest rates.
But the reform Warsh has been most vocal about, deleveraging the central bank’s balance sheet and making the Fed a passive observer, is the one he’s made no progress on.
Between August 2008 and March 2022, the Fed’s balance sheet, comprised primarily of long-term U.S. Treasury bonds and mortgage-backed securities, ballooned from nearly $900 billion to almost $9 trillion. Though a period of quantitative tightening reduced the balance sheet to approximately $6.54 trillion in late 2025, it’s been expanding since the start of 2026.
As of May 27, the Federal Reserve’s banks collectively held $6.704 trillion in assets. By July 1, this figure has grown by roughly $20 billion to $6.725 trillion. Over more than seven weeks, the new Fed chair hasn’t made any headway in shrinking the central bank’s balance sheet or, in his words, getting “out of the fiscal business.”
Source: Original Article
