Kevin Warsh, President Trump's Fed chairman nominee, argues the central bank's balance sheet explosion from $900 billion in 2008 to nearly $9 trillion in 2022 was a critical error. He wants to take aggressive action to reduce the current $6.7 trillion portfolio, viewing three-plus years of quantitative tightening as insufficient.

Warsh proposes Congress could assist by establishing a resolution fund to manage the wind-down. This approach would require acknowledging the unrealized losses lurking in the Fed's portfolio and budgeting for potential market disruptions as the central bank unwinds its holdings.

A dedicated institution managing the balance sheet reduction would allow the Fed to return to more conventional monetary policy operations. The proposal represents a significant departure from the emergency measures adopted during the 2008 financial crisis and subsequent economic disruptions.