Kevin Warsh's Return Ignites Fed Balance Sheet Debate, Market Tensions

• Former Fed Governor Kevin Warsh's potential return shifts market focus from interest rates to the Fed's $6.6 trillion balance sheet.
• Warsh, a vocal critic of the Fed's asset expansion, is expected to push for a drawdown, causing long-term Treasury yields to rise and gold/silver to fall.
• Shrinking the balance sheet could lead to higher long-term borrowing costs, potentially conflicting with the administration's goals and increasing pressure on the Treasury.
• Warsh advocates for a new Treasury-Fed accord to redefine their relationship and manage the balance sheet size, aiming for a smaller Fed footprint.
• Implementing significant changes will be challenging due to the balance sheet's massive size and the need for consensus among FOMC members.

Why It Matters: Kevin Warsh's potential Fed return sparks debate over the central bank's massive balance sheet and its market role.