The rest of the industry seems to be moving towards under-screen ultrasonic fingerprint readers, which if Apple adopted, would allow them to shrink the notch by getting rid of the Face ID sensors. I think they've dug in their heels on Face ID though, so it likely won't happen (although they did reverse course on Force Touch, so anything is possible).

They likely won't end up reducing the size of the notch any further until they figure out how to either make Face ID work with just a single selfie camera (which would inevitably be less secure), or put the sensors under some sort of semi-transparent display.

Many people thought they missed an opportunity by not simply putting the fingerprint sensor under the Apple logo on the back of the iPhone, but they probably didn't like the UX of that solution.