Rising revenue spending pushed the Federal Reserve system deep into record losses last year, the central bank said in preliminary figures released on Friday.
The Fed’s income after expenses was a negative $114.3 billion last year, compared to $58.8 billion in positive income the year before. The losses were tied to a surge in interest expenses faced by the central bank amid a rate hike campaign aimed at taming inflation.
The Fed paid a combined $281.1 billion to financial institutions last year, compared to $102.4 billion in 2022. Meanwhile, interest earned on bonds owned by the central bank totaled $163.8 billion last year, compared to $170 billion in 2022.
The Fed said operating expenses at the 12 regional banks, which are semi-private institutions overseen by the Fed’s Board of Governors, will total $5.5 billion in 2023.
The Fed pays interest to banks, financial firms and other money managers who are eligible to put cash on the central bank’s books as part of how it implements monetary policy and controls short-term rates.
Aggressive Fed rate hikes, starting in spring 2022 when the central bank’s rate target is near zero, pushed the rate range to between 5.25% and 5.5% at the December Federal Open Market Committee meeting, with the collective effect of the move ending a streak of strong gains Fed.
The Fed’s operating losses are tied to a surge in interest expenses the central bank faces amid a rate hike campaign aimed at taming inflation. AFP via Getty Images
The Fed funds itself through the interest earned from the securities it owns and through the services it provides to banks. It is usually profitable and remits excess revenue back to the Treasury as required by law. When it loses money, it books what it calls a deferred asset that accounts for losses, which the Fed expects to cover over time before handing profits back to the Treasury.
At the end of last year, deferred assets totaled $133 billion, and as of January 10, they totaled $136.9 billion. Predicting how big the loss will be is challenging because it depends on what the Fed does with interest rates, as well as how much it shrinks its current interest-earning bond holdings.
Fed Chairman Jerome Powell raised rates starting in the spring of 2022 from near zero to a range of 5.25% and 5.5%. Reuters
The Fed is almost certain to finish raising rates based on officials’ comments and if markets are right the central bank may cut them by spring. Meanwhile, it may also be approaching the endgame for a shrinking balance sheet.
This could ultimately limit losses, which until recently some analysts put in the range of $150 billion to $200 billion. Meanwhile, recent research from St. Louis Fed said it could take four years or more for the Fed to cover its losses and start returning money to the Treasury.
The loss of money does not affect the Fed’s ability to conduct monetary policy, officials have repeatedly insisted. At the same time, the Fed has yet to face any real political pushback against losses.
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Source: thtrangdai.edu.vn/en/
