Shrinking the Fed's $7 Trillion Balance Sheet: Warsh's Dilemma

Federal Reserve Chairman Kevin Warsh faces a monumental challenge with the $6.7 trillion balance sheet built up since the 2007-09 financial crisis. This policy, which includes buying mortgage-backed securities and long-dated Treasuries, has grown to nearly 21% of GDP. Warsh has criticized this as a 'proxy for the Fed's growing imprimatur on the economy.' Now, the question of how to unwind these assets looms large, threatening to destabilize financial markets.

The Fed's Balance Sheet: A Decade of Expansion - The Fed's balance sheet has swelled to $6.7 trillion since 2009.

■Treasury securities account for about two-thirds of its holdings.

■Warsh has warned that this policy has given the Fed 'too much power' over the economy.

Warsh's Dilemma: Balancing Debt and Growth - The Fed must decide how to unwind its balance sheet without triggering inflation.

■Maintaining the delicate balance between debt levels and economic growth is the Fed's greatest challenge.

How the Fed's balance sheet unwinding will impact inflation and economic growth remains one of the most critical questions facing the U.S. economy. The delicate balance between debt and growth will determine the future trajectory of the U.S. economy.