Smaller Fed Balance Sheet Requires More Active Fed, Mizuho Says

Kevin Warsh, President Donald Trump’s pick to lead the Federal Reserve, has been vocal about his desire to shrink the central bank’s balance sheet. To do so will require a more “interventionist” Fed when it comes to day-to-day money market operations, according to Mizhuo Securities USA LLC.

For years, US policymakers have adopted an “ample” reserves framework, aimed at keeping enough cash flowing through the banking system so that lenders are able to satisfy liquidity requirements mandated by regulations and settle payments without needing to borrow from the Fed. For the central bank, this has meant holding a sizable amount of Treasuries.