Business
Fed chair nominee Warsh may want smaller Fed holdings, but that’s not easy to do
That’s because Fed holdings and the regime that’s grown to manage interest rates in a system that is flush with cash is not easy to wind back while maintaining market stability and achieving monetary policy goals. It could be even trickier for a Fed chair who is likely to seek easier short-term borrowing costs, because anything that notably contracts central bank bond holdings actually tightens financial conditions.
Warsh, who was a Fed governor between 2006 and 2011, has argued that large Fed holdings distort finances in the economy and what the Fed now holds should be slashed. In a Wall Street Journal opinion story from November, he wrote “the Fed’s bloated balance sheet, designed to support the biggest firms in a bygone crisis era, can be reduced significantly,” with the proceeds redeployed “in the form of lower interest rates to support households and small and medium-sized businesses.”
Warsh’s call to shrink Fed holdings landed as the central bank was nearing the end of what proved to be a three-year effort to reduce the size of bond holdings acquired via aggressive purchases during the COVID-19 pandemic. The Fed bought Treasury and mortgage bonds first to help stabilize traumatized markets at the start of the health crisis, with those purchases morphing into a form of economic stimulus. Crisis buying doubled the size of Fed holdings to a $9 trillion peak in the summer of 2022 before a contraction process known as quantitative tightening, or QT, took overall holdings to $6.6 trillion in late 2025. In December, the Fed started to grow the stock of bonds it holds again via technical purchases of Treasury bills, in a bid to ensure there was enough liquidity in the financial system to provide firm control over its interest rate target range.
More broadly, using the balance sheet as a tool has become a standard part of the monetary policy toolkit, and a critical one given increased probabilities of short-term rates being cut to near-zero levels in times of trouble. Meanwhile, the Fed has developed an entire system of tools to manage rates. And that’s why getting holdings down in a meaningful way would prove so difficult to achieve without creating market chaos.
Warsh “may want a smaller balance sheet and smaller Fed footprint in financial markets,” said Joe Abate, U.S. rates strategist with SMBC Capital Markets, Inc. But, “actually reducing the size of the balance sheet is a nonstarter…Banks want this level of reserves.”
Abate was nodding to the fact that when reserves in the banking system ebb to around the $3 trillion mark, notable volatility starts to creep into money market rates, which then threatens the Fed’s ability to manage its interest rate target. This limits how far the Fed can reduce its holdings.Beyond market realities, there’s also the fact that any major change would need buy-in from other Fed policymakers, who’ve largely been on board with the overall arc of using the balance sheet as a policy tool and could oppose efforts to reengineer that part of the toolkit.
LONG PATH TO SMALLER HOLDINGS So how could Warsh get Fed holdings smaller given the realities of what the market will bear? Analysts said easing some of the regulatory burden on how banks manage liquidity, along with moves to make Fed liquidity facilities like the Discount Window and ongoing standing repo operations more attractive, could reduce the appetite for holding reserves and allow a smaller Fed footprint over time. David Beckworth, senior research fellow at the Mercatus Center at George Mason University, said that in addition to those moves, Warsh could include as part of the Fed’s existing periodic framework review actions to reconsider how the Fed uses its balance sheet. There could also be coordination between the Fed and Treasury where the two institutions swap bonds, he said. And while big changes may not be on the cards, there were ways the Fed could tinker with its toolkit to drive down the need to hold lots of liquidity.
“The Fed’s like a ship that slowly turns, that’s probably a good thing, because you don’t want to be so disruptive to the financial system,” Beckworth said.
Evercore ISI analysts agree that any actions Warsh takes on the balance sheet would be slow-moving and mindful of the risks of being aggressive.
“We think he will be more pragmatic than many expect,” the research firm said. “We think he will promise no abrupt changes to Fed balance sheet policy and a Fed-Treasury accord to provide a framework for closer cooperation,” the analysts wrote, adding “the market will read this as giving Treasury Secretary Bessent a soft veto on any QT plans and Warsh will be happy with that.”
Other writing on Substack: https://yieldstrategies.substack.com/I am currently focused on income investing through either common shares, preferred shares, or bonds. I will occasionally break away and write about the economy at large or a special situation involving a company I’ve been researching in. I target two articles per week for publication on Monday and Tuesday.About My Background: Bachelors in history/political science, Masters in Business Administration with a specialization in Finance and Economics. I enjoy numbers. I have been investing since 2000. Professionally, I am the CEO of an independent living retirement community in Illinois.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Business
Sydney House Prices Dip in Early 2026 as Affluent Suburbs Feel Pinch Amid Rate and Geopolitical Pressures
SYDNEY — Sydney’s housing market has hit a speed bump in the first quarter of 2026, with home values falling modestly as buyers grapple with higher borrowing costs, cost-of-living pressures and uncertainty from the Middle East conflict, according to the latest data from major property analysts.
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Cotality’s Home Value Index showed Sydney dwelling values edged down 0.1% in February and 0.2% over the March quarter, with affluent suburbs hit hardest. The median dwelling value stood at approximately $1.296 million as of early April, reflecting annual growth of around 6% but a clear slowdown from stronger gains in 2025. House values softened more than units, with upper-quartile properties declining while more affordable segments showed relative resilience.
The downturn contrasts with optimistic forecasts issued at the start of the year. Domain’s 2026 Forecast Report predicted Sydney house prices would rise 7% over the calendar year, pushing the median toward $1.924 million by year-end and edging closer to the symbolic $2 million mark. KPMG projected more moderate growth of 5.8% for houses and 5.3% for units, while several major banks forecasted between 3% and 5% overall.
Analysts attribute the recent softness to the Reserve Bank of Australia’s February rate hike, which tightened serviceability and dampened buyer sentiment. Higher fuel prices linked to Middle East tensions have further squeezed household budgets, prompting some sellers to list properties preemptively in case values fall further. Affluent eastern and northern suburbs have seen the steepest quarterly declines, while outer western and southwestern areas with more affordable stock have held up better.
Despite the quarterly dip, longer-term fundamentals remain supportive. Chronic undersupply of housing, strong population growth driven by migration, and low vacancy rates in the rental market continue to underpin demand. Rental growth has remained robust, with house rents up around 5.7% annually, reinforcing investor interest particularly in units.
SQM Research’s Louis Christopher revised forecasts downward in March, warning of potential falls of up to 6% in Sydney over 2026 if interest rate hikes materialize as priced by futures markets. Other voices, including PropTrack and Domain, maintain that any correction will be mild and that growth should resume as the year progresses, especially if inflation moderates and rate relief eventually arrives.
The market split is widening. Lower-quartile house values in Sydney rose 0.8% in one recent month while upper-quartile values fell 0.9%, highlighting how affordability constraints are shifting competition toward cheaper segments. First-home buyers face particular challenges, with entry-level house prices around $1.15 million requiring years of saving for a deposit.
Units have shown greater resilience than detached houses. The median unit value sits near $903,000, with some analysts forecasting 5-6.5% growth in 2026 as investors seek relatively more accessible entry points and stronger rental yields.
Auction clearance rates have moderated from peaks seen in late 2025, and days on market have edged higher in premium segments, signaling a more balanced dynamic between buyers and sellers. Listings remain relatively constrained overall, which has prevented sharper declines.
Economists note that Sydney’s position as Australia’s largest jobs hub and gateway for international talent provides underlying support. However, persistent affordability issues — with median prices more than 10 times average household incomes in many areas — continue to limit participation from younger buyers and upgraders.
Perth, Brisbane and Adelaide have outperformed Sydney and Melbourne so far in 2026, with stronger monthly gains driven by tighter stock levels and more affordable entry points relative to the eastern capitals. This fragmentation underscores how national trends mask significant regional variations.
Looking ahead, forecasts for the remainder of 2026 vary widely. Bullish projections from Domain see Sydney house prices climbing toward $1.92 million by December, assuming steady income growth and continued supply constraints. More cautious outlooks, including those adjusted for geopolitical risks and potential further rate hikes, point to flat or slightly negative growth.
Buyers entering the market are advised to focus on areas with strong infrastructure links, such as Western Sydney near the new airport or established inner-ring suburbs with good amenity. Investors may find better value and rental returns in units, particularly in high-demand precincts.
Sellers in premium markets are encouraged to price realistically, as evidence shows over-ambitious listings are taking longer to sell. First-home buyers and investors alike should factor in potential interest rate volatility and prepare for a market that rewards patience and thorough due diligence.
The broader Australian property story in 2026 remains one of divergence. While Sydney and Melbourne have cooled, resource-driven and more affordable capitals continue posting solid gains. National house prices are still expected to rise overall, with KPMG forecasting 7.7% growth across the country, led by Perth and Brisbane.
For Sydney specifically, the coming months will test whether recent softness evolves into a deeper correction or proves a temporary pause before renewed upward momentum. Chronic supply shortages and demographic pressures suggest prices are more likely to moderate than crash, but elevated borrowing costs and external shocks could prolong the current flat period.
Prospective buyers and sellers should monitor Reserve Bank decisions, inflation data and global energy prices closely. Professional advice from mortgage brokers and property experts remains essential in a market where local conditions can vary dramatically between suburbs.
Sydney’s housing market, long one of the world’s most expensive, continues to evolve under the twin pressures of demand and affordability. While the dream of home ownership grows more distant for many, the city’s enduring appeal as an economic powerhouse ensures it will remain a focal point for property investors and families alike.
As April trading in the property sector unfolds, the latest data suggests caution in the short term but guarded optimism for the longer horizon — provided global and domestic headwinds do not intensify further.
I ventured into investing in high school in 2011, mainly in REITs, preferred stocks, and high-yield bonds, starting a fascination with markets and the economy that has not faded despite the years. More recently I have been combining long stock positions with covered calls and cash secured puts. I approach investing purely from a fundamental long-term point of view. On Seeking Alpha I mostly cover REITs and financials, with occasional articles on ETFs and other stocks driven by a macro trade idea.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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Manika is a macroeconomist with over 20 years of experience in industries including investment management, stock broking, investment banking. She also runs the profile Long Term Tips [LTT], which focuses on the generational opportunity in the green economy. Her investing group, Green Growth Giants, takes the theme a step further from LTT with a deeper dive into opportunities presented by the segment.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, but may initiate a beneficial Long position through a purchase of the stock, or the purchase of call options or similar derivatives in CCL over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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As a detail-oriented investor with a strong foundation in finance and business writing, I focus on analyzing undervalued and disliked companies or industries that have strong fundamentals and good cash flows. I have a particular interest in sectors such as Oil&Gas and consumer goods. Basically, anything that has been unloved for unjustified reasons that could offer substantial returns. Energy Transfer is one of those companies that I came across when no one wanted to touch it and now I can’t resolve myself to sell it. I will always focus more on long-term value investing but I can sometimes lose myself in possible deal arbitrage such as with Microsoft/ Activision Blizzard, Spirit Airlines/Jetblue (that one still hurts), and Nippon/U.S. Steel (perfect exit at $50.19). I tend to shun businesses that I can’t understand either high-tech or certain consumer goods such as fashion (give me a Levi’s jeans). I don’t understand why anyone would invest in cryptocurrencies as well. Through Seeking Alpha, I aim to connect with like-minded investors, share insights, and build a collaborative community of individuals seeking superior returns and informed decision-making, currently on a quest to review every public company.
Analyst’s Disclosure: I/we have no stock, option or similar derivative position in any of the companies mentioned, and no plans to initiate any such positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Seeking Alpha’s Disclosure: Past performance is no guarantee of future results. No recommendation or advice is being given as to whether any investment is suitable for a particular investor. Any views or opinions expressed above may not reflect those of Seeking Alpha as a whole. Seeking Alpha is not a licensed securities dealer, broker or US investment adviser or investment bank. Our analysts are third party authors that include both professional investors and individual investors who may not be licensed or certified by any institute or regulatory body.
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