Key insights:
- The Fed balance sheet stopped shrinking in late 2025 and has risen about $170 billion since then.
- No formal QE program was announced, yet the balance sheet reversal has fueled debate over quiet easing.
- Bull Theory said added liquidity has coincided with stronger small caps, Bitcoin recovery, and wider risk appetite.
- Kevin Warsh said AI-driven productivity gains may support faster growth and lower inflation pressure on rates.
The Federal Reserve’s balance sheet has started to rise again, even without a formal quantitative easing announcement. That shift has drawn attention because liquidity trends often shape moves in stocks, crypto, and other risk assets. Recent comments from Kevin Warsh also added to that discussion, as he linked AI-led productivity gains to lower inflation pressure and room for lower rates.
Fed Balance Sheet Turns Higher After Years of Decline
The Federal Reserve started quantitative tightening in June 2022. It let bonds mature without full replacement, and that reduced its balance sheet over time. That process removed about $2.4 trillion from peak levels over the next few years. The balance sheet then fell to about $6.54 trillion in late 2025.
After that, the direction changed. The balance sheet has now risen to about $6.71 trillion, adding roughly $170 billion from the low. There was no new quantitative easing program. There was also no emergency lending headline tied to the move.
Bull Theory wrote that “the Fed may be easing again without calling it QE.”
The account argued that balance sheet expansion adds liquidity to the financial system. More liquidity often supports equities, crypto, and other higher-risk trades. Since that shift, small-cap stocks have shown strength. Bitcoin has also rebounded, while broader risk appetite has improved.
Bull Theory added that many investors focus on interest rates alone, noting that balance sheet policy can move markets before rate cuts begin.
Kevin Warsh Points to AI and Productivity Trends
Kevin Warsh made a related case around growth, productivity, and inflation. He said technological innovation, especially AI, could lift productivity and reduce cost pressure. That view suggests the economy may grow faster without creating the same inflation risk. It may also leave room for lower interest rates.
Warsh agreed that Fed models should reflect stronger output from new technology, argued that this could support easier policy without an inflation spike. Neil Sethi pointed to unit labor cost inflation as a key measure, noting that faster productivity growth slows unit labor cost growth in the labor market.
Neil Sethi also said unit labor cost inflation has a close link with headline consumer inflation. Unit labor cost inflation fell to 2.4% year over year in the fourth quarter of 2025. The data point adds another layer to the current policy debate, with markets now watching both the Fed’s balance sheet path and the inflation data. The broader question is whether the Fed is already easing in practice.
