Kevin Warsh has established task forces including a balance sheet committee with Jeremy Stein, Karen Dynan, and Raghuram Rajan. Darrell Duffie, a Stanford financial economist, argues shrinking the Fed's balance sheet isn't currently necessary but would take years.

He expects the portfolio to shift toward Treasury bills, making inflation control more critical. Duffie explains the balance sheet's dual role: assets support the economy during crises via quantitative easing, while liabilities like reserves and currency require asset backing.

Unlike forward guidance, asset purchases immediately lower yields without credibility commitments, though they create a "ratchet effect" where banks become dependent on abundant reserves, as noted by Raghuram Rajan and Viral Acharya.

Duffie recommends ensuring "ample reserves" truly means plenty, echoing Governor Chris Waller's warning against banks scrambling for reserves. He also urges developing tools to reduce the balance sheet if needed, noting political rather than economic pressure drives such calls. The "crowding out" risk — where excessive reserves limit bank lending — hasn't materialized yet but could intensify if the ratchet effect continues.