Fed’s aggressive rate hike campaign leads to record $114 billion loss by 2023

Rising revenue spending pushed the Federal Reserve system to a record loss last year, the central bank said in preliminary figures released Friday.

The Fed’s income after expenses was negative $114.3 billion last year, compared to $58.8 billion of positive income the year before. The loss was linked to a rise in interest expenses the central bank faced amid a rate-hike campaign aimed at cooling inflation.

The Federal Reserve paid a combination of financial institutions $281.1 billion last year, up from $102.4 billion in 2022. Meanwhile, the interest it earned on bonds held by the central bank totaled $163.8 billion last year. , compared to $170 billion in 2022.

The Federal Reserve said operating expenses at the 12 regional banks, which are quasi-private institutions overseen by the Federal Reserve Board of Governors, amounted to $5.5 billion in 2023.

The Federal Reserve pays interest to banks, financial firms and other money managers eligible to park cash on the central bank’s books as part of how it implements monetary policy and controls short-term rates.

The Fed’s aggressive rate hikes, which began in spring 2022, when the central bank’s rate target was near zero, pushed that rate range to between 5.25% and 5.5% in The December Federal Open Market Committee meeting, with the collective impact of those actions, ends the Federal Reserve’s streak of strong profitability.

The Federal Reserve’s operating loss was tied to a rise in interest expenses the central bank faced amid a rate-hike campaign aimed at cooling inflation. AFP via Getty Images

The Federal Reserve is funded through the interest it earns on the securities it owns and through the services it provides to banks. It is generally profitable and returns excess profits to the Treasury, as required by law. When you lose money, you post what it calls a deferred asset that accounts for the loss, which the Fed hopes to cover over time before returning the profits back to the Treasury.

See also  The life of IFP leader Velenkosini Hlabisa is under threat: the police provide him with more bodyguards

At the end of last year, deferred assets amounted to $133 billion and, as of January 10, $136.9 billion. Forecasting how big the loss will be is challenging because it depends on what the Federal Reserve does with interest rates, as well as how much more it will reduce its holdings of bonds on which it currently earns interest.

Federal Reserve Chairman Jerome PowellChairman Jerome Powell’s Federal Reserve raised rates starting in spring 2022 from near-zero levels to the 5.25% and 5.5% range. REUTERS

The Federal Reserve is almost certainly done raising rates based on officials’ comments, and if markets are right, the central bank could be cutting rates by spring. Meanwhile, it may also be nearing the end of the balance sheet squeeze.

This could ultimately limit losses, which until recently some analysts estimated at $150 billion to $200 billion. Meanwhile, recent research from the St. Louis Federal Reserve said it would probably take four years or so for it to cover its loss and start returning money to the Treasury.

The loss of money does not affect the Federal Reserve’s ability to conduct monetary policy, officials have repeatedly stressed. At the same time, the Federal Reserve has yet to face any real political blowback from the losses.

Categories: Trending
Source: vtt.edu.vn

Leave a Comment