Fed's 'Ample Reserves' Policy Under Review: Warsh's Balance Sheet Scrutiny

New Fed Chair Kevin Warsh has launched a review of the 'ample reserves' policy that has guided U.S. interest rate decisions for 18 years, examining its advantages and disadvantages. While he dismissed the possibility of a full return to pre-2008 policies, Warsh acknowledged alternative sustainable equilibriums.

■The Fed's $6.8 trillion balance sheet is under scrutiny by a task force.

■The 'ample reserves' regime requires the central bank to hold large amounts of bonds.

■Warsh emphasized any changes would be 'well deliberated, public, and understood.' - The Fed shifted from a 'scarce reserves' regime in 2008, holding less than $1 trillion in bonds.

■Three rounds of quantitative easing (QE) were conducted between 2008-2014.

■Warsh holds long-term Treasury and mortgage-backed securities.

The review of Fed's balance sheet policies could reshape market expectations, particularly regarding long-term bond holdings and the end of QE.