Rising income expenses pushed the Federal Reserve system deep right into a record loss last 12 months, the central bank said in preliminary figures released on Friday.
Fed income after expenses got here in at a negative $114.3 billion last 12 months, versus $58.8 billion in positive income the 12 months before. The loss was tied to a jump in interest expenses faced by the central bank amid a rate hike campaign geared toward cooling inflation.
The Fed paid a combination of financial institutions $281.1 billion last 12 months, versus $102.4 billion in 2022. Meanwhile, interest it earned from bonds the central bank owns totaled $163.8 billion last 12 months, versus $170 billion in 2022.
The Fed said operating expenses on the 12 regional banks, that are quasi private institutions overseen by the Fed Board of Governors, stood at $5.5 billion in 2023.
The Fed pays banks, financial firms and other eligible money managers interest to park money on the central bank’s books as part of the way it implements monetary policy and controls short-term rates.
Aggressive Fed rate increases, starting in the spring of 2022 when the central bank’s rate goal was at near-zero levels, pushed that rate range to between 5.25% and 5.5% as of the December Federal Open Market Committee meeting, with the collective impact of those actions ending the Fed’s streak of strong profitability.
![Federal Reserve headquarters](https://nypost.com/wp-content/uploads/sites/2/2024/01/2021-signal-monitoring-price-increases-18340143.jpg?w=1024)
The Fed funds itself through interest it earns on securities it owns and via services it provides banks. Often it’s profitable and hands excess earnings back to the Treasury as required by law. When it loses money it books what it calls a deferred asset which tallies the loss, which the Fed expects to cover over time before again handing profits back to the Treasury.
At the top of last 12 months, the deferred asset stood at $133 billion, and as of Jan. 10, it stood at $136.9 billion. Forecasting how big the loss might be is difficult since it depends upon what the Fed does with rates of interest, in addition to how much further it shrinks its holdings of the bonds it currently earns interest from.
![Fed Chair Jerome Powell](https://nypost.com/wp-content/uploads/sites/2/2024/01/federal-reserve-board-chairman-jerome-73898698.jpg?w=1024)
The Fed is nearly actually done raising rates based on officials’ comments and if markets are right the central bank could also be cutting them by spring. Meanwhile, it may be approaching the top game for balance sheet shrinkage.
This might ultimately cap the losses, which until recently some analysts were putting in the $150 billion to $200 billion range. Meanwhile, recent research from the St. Louis Fed said it might likely take the Fed 4 or so years to cover its loss and begin returning money to the Treasury.
Losing money doesn’t impair the Fed’s ability to conduct monetary policy, officials have stressed repeatedly. At the identical time, the Fed has yet to face any real political pushback over the losses.