Monetary nostalgia at the Fed

Professor Lucrezia Reichlin argues in Project Syndicate (Kevin Warsh’s Dangerous Monetary Nostalgia, 6 February) that Kevin Warsh’s call to shrink the Federal Reserve’s balance sheet reflects an outdated view of monetary policy, mistaking core financial infrastructure for a reversible policy experiment.

In today’s system, where banks, non-banks, and sovereign-debt markets depend on abundant central-bank liquidity, aggressive balance-sheet reduction would likely amplify volatility, force repeated Fed interventions, and weaken rather than restore monetary credibility.

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