US Stock Market | Warsh’s Big Task: Why balance sheet cuts may take years

Prolonged quantitative tightening by the Fed typically leads to a stronger dollar and reduced capital flows to emerging markets like India, affecting liquidity and borrowing costs. This could temper the recent rally seen in Nifty and Sensex.

• •Shrinking the Federal Reserve's $6.6 trillion balance sheet will be a lengthy, complex process.
• •The process requires structural reforms, not quick policy shifts.
• •A new paper suggests a multi-year roadmap involving temporary operations, regulatory adjustments, interest rate modifications, and payment system redesign.
• •This undertaking could extend beyond a single term for the incoming Fed Chair nominee.
• •Risk flag: Faster-than-expected Fed balance sheet reduction could exacerbate FII outflows.