A new Fed Chair advocating for a smaller balance sheet cannot simply sell assets without causing market volatility. The Fed must first implement complex, long-term regulatory changes to reduce commercial banks' demand for reserves. This involves coordination with the Treasury and is not a quick policy shift.
Despite a change in leadership, the Federal Reserve's interest rate policy is unlikely to shift materially in the near term. The new chair, Kevin Warsh, must build consensus among 16 other committee members whose views are established. The Fed's reaction function is driven by collective data analysis, not the sole will of the chair.
If incoming Fed Chair Kevin Warsh reduces public communication, it could increase market uncertainty about future policy. This lack of clear forward guidance may lead investors to demand a higher risk premium for holding long-term bonds, causing the U.S. Treasury yield curve to steepen, all else being equal.