By “shrinking the balance sheet” I assume they mean unwinding the 4.5 trillion in government bonds they own. The Fed bought them during the QE Obama years. They will have to be dealt with sometime.
They just have to let them mature and roll off the balance sheet. We could be Japan, I guess, and own 99% of the debt and 40% of the equities.
Or maybe China. They own 400% of the debt.