Warsh Will Face Challenges Shrinking Fed’s Portfolio, Citi Says

Federal Reserve Chair nominee Kevin Warsh is likely to take a gradual approach to shrinking the central bank’s $6.6 trillion portfolio to avoid rekindling money market tensions, according to strategists at Citigroup Inc.

Any attempt by the central bank to resume unwinding its balance sheet — a process known as quantitative tightening — could revive pressures in the $12.6 trillion repurchase market, the strategists said. The Fed abandoned the process in December after rates in the repo market — where banks borrow and lend to each other for day-to-day needs — surged.

“The bar for restarting QT is quite high ...