Fed reports largest operating loss ever on aggressive stance

The US central bank experienced its largest operating loss of $114.3 billion in 2020 and 2021 due to aggressive support of the US economy. The Fed’s vigorous economic support and subsequent hike in interest rates to counter excessive inflation caused the central bank to suffer its greatest operational loss ever.

Larger federal deficits and Treasury debt auctions have resulted from this. As long as short-term interest rates stay close to their current levels, the US central bank may continue to suffer losses, which could lead to fresh political attacks against the Fed.

After costs, the Fed’s income for the previous year was $114.3 billion less than its previous year’s positive income of $58.8 billion. The loss was a result of the central bank’s rising interest costs during its drive to raise interest rates in an effort to curb hot inflation. In contrast to $102.4 billion in 2022, the Fed paid a variety of financial companies $281.1 billion last year. The central bank’s holdings of bonds generated $163.8 billion in interest income in 2022 compared to $170 billion in 2022. In 2023, the operating expenses of the twelve regional banks totaled $5.5 billion.

The Fed finances itself by collecting interest on securities it owns and by offering banks services. It is typically profitable and, as required by law, returns surplus earnings to the Treasury. When it experiences a loss, it records the amount as a deferred asset, which the Fed anticipates covering over time before returning profits to the Treasury.

Based on statements made by officials, the Fed is most likely done raising rates and may even lower them by spring. It would probably take the Fed four years or more to make up for its loss and begin sending money back to the Treasury, according to recent study from the St. Louis Fed. The Fed can still implement monetary policy even after suffering financial losses, and there hasn’t been any significant political backlash against the Fed.