Wall Street speculated on the Fed's balance sheet reduction path after Powell took office, predicting that the central bank would pay a hefty price.

Wall Street strategists believe that Kevin Warsh, the Federal Reserve Chairman nominated by President Trump, has multiple ways to reduce the Fed's $6.6 trillion balance sheet, but the process is costly and time-consuming. Strategists suggest that possible balance sheet reduction strategies include relaxing regulations that encourage banks to hold large cash reserves at the central bank, or shortening the average maturity of Fed holdings. The Fed could also stop buying Treasuries or even directly sell securities. A less likely path is to resume reducing holdings, known as quantitative tightening. The Fed abandoned this process in December due to increasing government borrowing leading to market pressure. Subsequently, the Fed began buying Treasuries to inject reserves back into the system. Regardless of which path the Fed under Warsh's leadership takes, it may take several years.