The Federal Reserve announced Tuesday that it formally expects net income to be negative $114.3 billion in 2023, a record loss related to costs related to managing the central bank’s short-term interest rate target.
Last year’s loss followed a net profit of $58.8 billion in 2022, the Fed said.
The figures published are an audited tally that follows provisional figures reported earlier this year.
The Fed has repeatedly emphasized that net negative earnings do not impede its ability to manage and implement monetary policy.
By law, the Fed is supposed to turn over profits to the Treasury after covering operating expenses.
The Fed derives its income from the services it provides to the financial system and from interest income on the securities it holds.
The company has made significant profits in recent years thanks to extremely low interest rates and large bond holdings.
The central bank’s finances have changed completely due to the Fed’s move to aggressively raise the federal funds rate starting in the spring of 2022.
To cool inflation pressures, the Fed raised its target from near-zero levels to its current range of 5.25% to 5.5%.
The Fed maintains that goal by paying banks, money funds and other financial institutions to keep their cash with the central bank, which effectively means they pay more interest.
Interest expense on Fed-audited bank reserve balances reached $176.8 billion last year, an increase of $116.4 billion from 2022 levels, and interest payments from reverse repurchase facilities rose $104.3 billion, up from $41.9 billion last year. became.
Meanwhile, the Fed’s income from bonds held was $163.8 billion last year, little changed from 2022.
When the Fed deals with operating losses, it can generate funds to fund its operations. This means the Fed faces no obstacles to its operations.
Losses are recorded in an accounting instrument called deferred assets.
The official level of deferred assets is $133.3 billion at the end of 2023.
As of March 20, that amount had reached $157.8 billion, and it’s unclear how much larger it will grow in the future.
When the Fed returns to surplus, it uses excess profits to reduce deferred assets, and once they are exhausted, the Fed begins returning excess profits to the Treasury again.
Fed officials note that they have returned significant amounts to the Treasury in recent years.
A St. Louis Fed report last year said it could be years before the Fed can return profits to the government.
