Morgan Stanley economists argue that a swift change in the Fed’s footprint under a potential Kevin Warsh chairmanship is unlikely. Warsh has long criticized the Fed’s large balance sheet and heavy communication role, but structural constraints and reserve demand make rapid shifts difficult.

Current balance‑sheet reductions have trimmed assets from roughly $9 trillion to $6.6 trillion, largely via overnight reverse repo cuts. Further shrinkage would erode bank reserves, shift the system from ample to scarce, and lift short‑term funding rates, according to the Morgan Stanley note.

Warsh’s push for a leaner Fed could also slow the return to an all‑Treasury portfolio. With mortgage‑rate hikes dampening prepayment speeds, the Fed may need a decade to halve its MBS holdings through passive runoff, while active sales risk widening spreads and hurting housing affordability.

Looking ahead, Morgan Stanley warns that quantitative easing will likely be reserved for recessionary lows, while reserve‑management tools will be used sparingly. A shift toward fewer speeches could increase volatility, widen term premiums, and force investors to rely more on data than policy signals.