WASHINGTON, May 15 (Reuters) – Incoming Federal Reserve chief Kevin Warsh’s plans to shrink the U.S. central bank’s “footprint” in financial markets could be constrained by the rising federal debt and potentially lost luster of U.S. Treasuries, analysts said.
Warsh, who was confirmed by the U.S. Senate on Wednesday to replace Fed Chair Jerome Powell, has advocated for a smaller central bank role and less market intervention as part of a return to a more conventional monetary policy style that he feels can stay better focused on controlling inflation and avoiding any distortion of markets.
However attractive in theory, the approach could also reveal gaps in the market for Treasuries that would either push up long-term interest rates…