Core Viewpoint - The U.S. Treasury Secretary, Becerra, stated that even if Kevin Warsh becomes the Federal Reserve Chairman, the Fed will not rush to reduce its balance sheet, with decisions expected to take up to a year to finalize [1] Group 1: Federal Reserve's Balance Sheet Management - The adjustment of the balance sheet will be decided independently by the Federal Reserve, and if it shifts to a "sufficient reserves" policy, a large balance sheet will need to be maintained [1] - Warsh's nomination is seen as a significant shift in monetary policy direction, aiming to balance the Fed's independence with administrative pressure [1] - Warsh's policy is characterized as a moderate hawkish stance, advocating for a substantial reduction in the balance sheet to create space for lowering the federal funds rate [2] Group 2: Market Reactions and Concerns - The market perceives Warsh's "balance sheet reduction and rate cut" policy as bold but fraught with uncertainties, potentially leading to a sharp rise in overnight financing rates if the Fed aggressively reduces reserves [2] - Experts warn that reducing the balance sheet could raise long-term rates, directly impacting the goal of lowering rates [2] - Citi strategists believe Warsh may adopt a gradual approach to reduce the Fed's approximately $6.6 trillion balance sheet to avoid reigniting tensions in the money market [3] Group 3: Policy Implementation Strategies - Citi suggests that the threshold for restarting quantitative tightening (QT) is very high, with policymakers preferring a more moderate approach to balance sheet management [3] - Under Warsh's leadership, the Fed may have various "de-leveraging" options, with the least resistance path being the rolling over of maturing long-term Treasury bonds into short-term debt [3]