Warsh’s Fed balance-sheet plan faces pressure from rising U.S. debt and Treasury yields

Incoming Federal Reserve chief Kevin Warsh’s push to shrink the central bank’s market footprint could be constrained by rising U.S. debt and weaker demand advantages for Treasuries, analysts said May 15, 2026. Warsh, confirmed by the Senate on May 13, 2026, has advocated a smaller Fed balance sheet and less intervention in financial markets. The Fed held about $6.7 trillion in assets as of May 15, down from a 2022 peak near $9 trillion. Analysts warned that reducing holdings further could expose gaps in Treasury demand, lifting long-term rates or forcing the Fed to resume bond purchases to stabilize markets. The Congressional Budget Office projects the federal deficit at 5.8% of GDP in fiscal 2026, above a 50-year average of 3.8%. St. Louis Fed research found the Treasury “convenience yield” fell about 40 basis points as balance-sheet runoff began in 2022, raising U.S. borrowing costs. Former Fed officials said any major shift would require clearer rules and possibly closer coordination with the Treasury.