Federal Reserve Posted Loss of $77.6 Billion in 2024
EDITORIAL:
This story was also covered earlier by Mike Mahoney in the following video. The MELTDOWN HAS BEGUN!
30 Seconds To Midnight: THE FED JUST WENT BANKRUPT | Mike Maloney
https://www.youtube.com/watch?v=qlow3WcF_jI
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Story by Nick Timiraos, Wall Street Journal-3/21/25
The Federal Reserve ran an operating loss of $77.6 billion last year, the second straight year of large losses.
Those losses are a side effect of the central bank’s campaign to aggressively support the economy during the pandemic in 2020 and 2021 and its subsequent decision to jack up interest rates to combat high inflation in 2022 and 2023. They don’t require the Fed to ask for any money from the Treasury Department and don’t affect the Fed’s day-to-day operations.
The figures were disclosed Friday when the U.S. central bank published audited results of its 2024 financial statements. The Fed reported a loss of $114.3 billion in 2023.
Generating profits and interest income isn’t a specific goal of the Fed but rather a byproduct of its conduct of monetary policy, which aims to keep inflation low and stable with a healthy labor market.
Until 2022, the Fed almost always turned a profit, and it often returned hefty sums to the U.S. Treasury last decade when interest rates were low. But over the last two years, when rates were high, the central bank’s costs exceeded its income due to some complex monetary plumbing it uses to set short-term interest rates.
The Fed’s balance sheet includes assets such as Treasury securities and mortgage-backed securities on which the central bank earns money like any other investor would. On the other side of the ledger are liabilities, including deposits that banks maintain at the Fed known as “reserves.” It pays interest on those reserves.
When the Fed raised interest rates rapidly in 2022, it steadily had to pay financial institutions more money on those reserves. By September of that year, the Fed was paying more on interest than it was earning from its portfolio of securities.
The Fed is self-funded, meaning it doesn’t receive money from Congress. Instead, it covers all operating expenses out of the income it earns on securities and sends the rest to the Treasury.
The Fed also funds the operations of the Consumer Finance Protection Bureau. Congress required it to do so when it created the agency through the 2010 Dodd-Frank financial overhaul law.
Unlike federal agencies, the Fed doesn’t have to go to Congress hat in hand to cover operating losses. Instead, the Fed created an IOU in 2022 that it calls a “deferred asset.” When the Fed is no longer running losses, it will pay itself back first and extinguish the deferred asset before resuming its previous practice of sending profits to the Treasury.
The central bank maintained a relatively small portfolio until the 2007-09 financial crisis. After that, the Fed’s net income soared as it held short-term rates at low levels while owning higher-yielding long-term securities. Between 2012 and 2021, the Fed sent more than $870 billion to the Treasury, including $109 billion in 2021.
During the first nine months of 2022, the Fed transferred $76 billion in earnings to the Treasury. In September of that year, it began running a loss, and it ended the year recording a $16.6 billion deferred asset.
The Fed’s deferred asset grew to nearly $216 billion in 2024 from $133 billion in 2023.
When the Fed returns to profitability depends on when and whether it lowers interest rates to a level that is below the yield it currently earns on a $6.8 trillion portfolio of bonds and other assets. The Fed has been shrinking that portfolio for the past three years.
Projections last year from the New York Fed showed the Fed would continue to run losses this year if the level of short-term interest rates remained above 4%, while it would have a profit if interest rates continued to steadily decline. The Fed’s benchmark rate is currently about 4.3%, down from about 5.3% at the start of September.
“They are getting closer and closer to break-even as time goes by,” said Seth Carpenter, who is chief global economist at Morgan Stanley and who previously worked at the Fed and the Treasury. “It’s difficult for me to see a scenario where they don’t get back to making a net profit, but it could take a couple of years.”
Fed losses are a side effect of its efforts to support the economy during the Covid-19 pandemic by purchasing large amounts of Treasury and mortgage-backed securities. Those holdings consist primarily of Treasury and mortgage-backed securities that it accumulated during bond-buying stimulus programs between 2009 and 2014 and again between 2020 and 2022. At the end of last year, the weighted average interest rate on the $6.8 trillion in securities yielded 2.6%, according to Morgan Stanley.
The Fed is currently paying 4.4% on some $3.4 trillion in reserves.
Fed officials last decade expressed unease in private over the potential political blowback should it be forced to raise rates rapidly and incur losses on its securities holdings, according to transcripts of their policy meetings.