Catenaa, February 08, 2026 – Kevin Warsh’s nomination as the next Federal Reserve chair has ignited a fresh debate over the central bank’s role in the U.S. economy. His proposal to shrink and potentially “privatise” parts of the Fed’s balance sheet reflects deep concerns about fiscal dominance and central-bank independence.
Warsh is critical of the Fed’s large portfolio of Treasuries and mortgage-backed securities, which totals about $6.6 trillion. He argues that a large balance sheet blurs the line between monetary policy and fiscal responsibilities. His critics say the approach could shift risk to private banks without solving underlying fiscal pressures.
At the core of Warsh’s view is the belief that allowing bonds to mature without replacement, and a return to quantitative tightening, would reduce the Fed’s footprint. He and allies also suggest regulatory changes that could encourage banks to absorb more government debt.
Proponents argue that this could keep liquidity ample while lowering yields. However, analysts warn of new risks. If banks load up on longer-dated Treasuries, rising rates could expose them to losses. That scenario could trigger instability similar to the 2023 banking turmoil.
The debate comes as markets remain sensitive to shifts in monetary policy. A genuine move to shrink the balance sheet could tighten financial conditions, potentially pushing up borrowing costs for households and businesses.
Warsh’s critics, including some former Fed governors, argue that fiscal irresponsibility drives the size of the balance sheet more than monetary policy choices. Transferring debt to private hands may not address the root problem of deficit spending.
As Congress prepares for Warsh’s confirmation hearing, his stance will become a central theme in discussions about the Fed’s future. Investors, banks, and policymakers are watching closely for clues on how far the institution might move toward market-driven mechanisms.
