#Gate13周年现场直击 Weekly News Highlights

This week, expectations for Federal Reserve personnel and policy are heating up simultaneously.
The U.S. Senate Banking Committee will hold a hearing at 10 p.m. Beijing time on Tuesday regarding Kevin Warsh’s nomination to be Federal Reserve Chair. This will be Warsh’s first formal explanation of his monetary policy framework on Capitol Hill, and it is seen by the market as an important window to observe the future direction of Fed policy.
The market’s high attention to Warsh is not only because of the personnel change itself but also due to his consistent and clear policy stance. Compared to the current Fed framework of “ample reserves + large balance sheet,” Warsh has long criticized the large size of the balance sheet, believing it not only distorts market pricing and increases central bank financial risks but also blurs the boundaries between monetary and fiscal policy to some extent. Against this background, the hearing is likely to become a key occasion for him to systematically express his advocacy for “smaller balance sheets + more market-oriented interest rate mechanisms.”
Federal Reserve Chair Candidate Kevin Warsh Source: Financial Times
It is worth noting that recent research from within the Fed also provides theoretical support for similar ideas. Research led by Miran, a Fed governor nominated by President Trump, points out that the main obstacle to balance sheet reduction is not that markets cannot bear lower reserve levels, but that regulatory rules and operational mechanisms invisibly raise the “demand baseline” for reserves in the banking system. This judgment effectively opens up policy space for more aggressive balance sheet reduction — the key is not to passively wait for reserves to become “naturally scarce,” but to actively lower the operational threshold for “ample reserves” through institutional adjustments.
Quantitative analysis shows that, with regulatory and operational framework optimization, the Fed’s balance sheet still has an estimated compression space of about $1.2 trillion to $2.1 trillion. Given the current balance sheet size of about 21% of GDP, it could shrink closer to levels seen in 2012 or 2019.
Overall, the significance of Warsh’s hearing may not only be a routine personnel procedure but also a forward-looking signal of potential future adjustments to the monetary policy framework. If he clearly signals a policy inclination toward “faster balance sheet reduction” or “restructuring the reserve framework,” the market will need to reassess not only the interest rate path but also liquidity conditions, the supply and demand structure of government bonds, and the financial system’s capacity to adapt to the Fed’s “exit.”