President Trump’s nominee for Federal Reserve chair, Kevin Warsh, has previously called for the Fed to reduce the size of its balance sheet. In a new primer, Director of Financial Services Policy Thomas Kingsley explains what the Fed’s balance sheet is and why the size matters.

He concludes:

The Federal Reserve’s balance sheet is no longer just the quiet backdrop to monetary policy; it is part of the main act. That does not mean it should be feared, nor does it mean it should be taken for granted. Used carefully, balance sheet tools can stabilize markets and reinforce policy goals when traditional tools fall short. Used casually, they risk blurring institutional boundaries and dulling the signals that monetary policy is meant to send.

Read the analysis.

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