NEW YORK — The Federal Reserve could begin another round of balance-sheet reduction as early as the first quarter of 2027 and shrink its holdings by approximately $1.5 trillion over two years, according to Morgan Stanley economists.

Economists Seth Carpenter and Michael Gapen said a reasonable range for the reduction would be between $600 billion and $2.5 trillion.

They expect the Fed to maintain its ample-reserves framework while gradually reducing both the supply of and demand for bank reserves. Policymakers may discuss returning to a scarce-reserves system, but such a change would require additional preparation and could increase day-to-day volatility in money markets.

The report said tiered interest payments on reserve balances could encourage banks to replace some reserves with U.S. Treasury bills, which receive similar regulatory treatment while earning market-based returns. Changes involving the Treasury General Account and cash placed by foreign official institutions in reverse-repurchase facilities could create several hundred billion dollars of additional room for balance-sheet reduction.

Morgan Stanley said the process could remain largely technical and have little effect on financial markets or financial conditions if carefully managed.

The greater risks are likely to arise during the transition. These include reducing reserves too quickly, failing to adjust liquidity regulations, continued reluctance among banks to use the Fed’s discount window and disruptions to money-market operations.

The market impact will depend less on the total size of the reduction than on which Fed liabilities decline, which assets leave the System Open Market Account, how the U.S. Treasury finances the adjustment and whether reserves remain ample, the strategists said.