Losses
The Federal Reserve has reported significant losses in recent years, with the trend continuing into 2024. According to the latest audited figures, the Fed posted a comprehensive net loss of $77.5 billion for 2024, which is a decrease from the $114.6 billion loss recorded in 2023. This marks the third consecutive year of losses for the central bank, as it last turned a profit in 2022. The Federal Reserve (Fed) can incur losses primarily due to the mismatch between its interest income and interest expenses, which has occurred as a result of its monetary policy actions to combat inflation.
Causes and Context
The primary reason for these losses is the Fed's efforts to combat high inflation:
Interest rate hikes: The Fed significantly increased its short-term interest rate range from near-zero levels to 5.25%-5.50% by July 2023 to curb inflation.
Higher interest expenses: To manage its interest rate target, the Fed pays banks, money market funds, and other qualified institutions for holding cash, leading to increased interest expenses.
Financial Details
Total interest-related expenses for 2024: $226.8 billion (down from $281.1 billion in 2023)
Interest income for 2024: $158.8 billion (down from $174.5 billion in 2023)3
Cumulative losses tracked through a "deferred asset": $224.4 billion as of March 2025
Implications
Monetary Policy: Despite these losses, the Fed maintains that its ability to implement monetary policy and operate normally is not affected.
Treasury Remittances: The Fed has suspended profit remittances to the U.S. Treasury and will only resume once it returns to profitability and offsets its cumulative losses.
Taxpayer Impact: While the losses may seem concerning, they don't necessarily translate directly to losses for taxpayers, as the Fed's actions can also lead to reduced interest payments on government debt.
Quantitative Tightening
The Federal Reserve's balance sheet reduction process, known as quantitative tightening (QT), is currently ongoing but with some recent adjustments: