Bessent says Fed will take its time on balance sheet moves

Treasury Secretary Scott Bessent said on Sunday he would not expect the Federal Reserve to move quickly to shrink its balance sheet, even under Fed chief nominee Kevin Warsh, who has criticized the central bank’s bond purchases.

Bessent said on Fox News Channel’s “Sunday Morning Futures” program that the Fed could take up to a year to make decisions on its balance sheet, adding that Warsh will be a very independent Fed chief.

Treasury Secretary Scott Bessent said it may take the Fed up to a year to make make decisions on its balance sheet. REUTERS

“That will be up to the Fed in terms of what they want to do with the balance sheet,” Bessent said. “I wouldn’t expect them to do anything quickly if they move to an ample (reserves) regime policy, and that does require a larger balance sheet. So, I would think that they’ll probably sit back, take at least a year to decide what they want to do.”

The Fed vastly expanded its balance sheet during the global financial crisis and the COVID-19 pandemic to push down long-term interest rates, to a peak of $9 trillion in the summer of 2022 before allowing its holdings to run down — a process called quantitative tightening — to $6.6 trillion in late 2025.

But in December, the Fed started to grow the stock of bonds it holds again via technical purchases of Treasury bills in a bid to ensure there was enough liquidity in the financial system to provide firm control over its interest rate target range.

The Fed’s balance sheet was down to $6.6 trillion late last year. AFP via Getty Images

Warsh, who served as a Fed governor from 2006 to 2011, has argued that large Fed holdings distort finances in the economy and what the Fed now holds should be slashed.

President Trump has said he wants mortgage rates to be much lower, and shrinking the Fed’s balance sheet would work against that goal and be difficult to achieve while maintaining financial stability, experts say.