The top bank in the U.S. lost $114B, and the media said nothing

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The Federal Reserve controls almost every aspect of the economy, including things like interest rates and the money supply.

As the controller of the U.S. money supply, you would think they would know how to run their banking business.

But it turns out that the Federal Reserve just lost billions of dollars in 2023, while the media has remained silent.

The Fed lost a fortune in 2023

Not only did the Federal Reserve lose close to $114.3 billion in 2023, but it’s the largest annual loss they’ve ever faced in their entire history.

The issue comes as the interest the Fed pays out to banks has overtaken the interest it earns on its bond portfolio.

Money that the Fed pays banks for reserves held at the central bank has exceeded the interest earned on the mortgage and Treasury bonds it holds.

The Fed has been raising the interest rate paid on those reserves, alongside the hikes on the benchmark federal funds rate.

The hikes were made to try and stave off some of the worst inflation the country has seen in over four decades.

But the losses could have been even worse if the Fed had included the decline in the market value of its bond holdings as part of the report.

However, since those bond holdings are held to maturity, they weren’t included in the Federal Reserve’s most recent total operating losses.

The Federal Reserve is required to pay any profits it receives to the Treasury Department by law.

But when it loses money, it increases the federal government’s budget deficit since the Treasury doesn’t get any of that revenue.

And now, the Treasury Department could be deprived of revenue from the Fed because of how they account for the losses, even if or when the central bank stops losing money.

An operating loss causes a deferred asset in the amount of the loss incurred by the Federal Reserve. 

If the Fed turns a profit later, which likely won’t happen until interest rates are lower, it must first pay down the deferred assets, or in other words, pay itself back for the losses before it can start repaying the Treasury.

Staggering numbers

In the first nine months of 2022, the Fed gave the Treasury $76 billion, but losses started accumulating in September and totaled $16.6 billion for that year.

Operating losses have never stopped the Fed from paying the Treasury for a significant length of time ever before in history.

The Fed started accumulating a massive bond portfolio, mostly consisting of U.S. Treasuries and mortgage-backed securities that are guaranteed by government agencies like Fannie Mae and Freddie Mac.

This started happening during the 2008 financial crisis, and some officials worried about a potential political backlash if the central bank suffered losses because of rapid interest rate hikes in the future.

Those bond purchases were later known as quantitative easing or QE, and they continued for years long after the financial crisis had ended. 

But quantitative easing reached new heights when the COVID-19 pandemic struck and took the Fed’s balance sheet from $4 trillion to an eye-watering $9 trillion.

It’s likely that the Federal Reserve will continue to see losses as the benchmark interest rate target, which is now at a range of between 5.25 and 5.50 percent, remains above 3.5 percent, all while the media stays silent.

Informed American will keep you up-to-date on any developments to this ongoing story.