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8 months ago
22
The Federal Reserve posted a record $114.3 billion loss in 2023 as it struggled to manage its short-term interest rate target.
Last year's loss came after a $58.8 billion in net income in 2022, the body said.
Officials have repeatedly stressed net negative incomes do not impede its ability to operate or conduct monetary policy as usual.
It comes after the Fed once again opted to hold interest rates steady at their current 23-year-high during its March meeting.
The Fed's benchmark funds rate - which has a knock-on effect on mortgages and credit card loans - will remain at its current level of between 5.25 and 5.5 percent where it has been since last July.
Alongside the decision, policymakers penciled in three quarter-percentage point cuts by the end of the year.
The Federal Reserve posted a record $114.3 billion loss in 2023 as it struggled to manage its short-term interest rate target. Pictured: Fed Chair Jerome Powell at the body's March meeting
Last year's loss came after a $58.8 billion in net income in 2022, the Fed said.
The numbers released were an audited tally following preliminary numbers reported earlier this year.
By law, the Fed hands over any profits after covering operational expenses to the Treasury.
The Fed earns income from services it provides the financial system and from interest income on securities it owns.
It has earned significant profits over recent years amid very low rates and large levels of bond holdings.
The Fed's move to aggressively boost the federal funds rate starting in the spring of 2022 has upended central bank finances.
To cool inflation pressures, the Fed lifted the target from near zero levels to its current 5.25% to 5.5% range.
The Fed maintains that target by paying banks, money funds and other financial firms to park cash at the central bank, and that is meant paying out substantially more in interest.
The Fed's audited interest expenses for banks' reserve balances hit $176.8 billion last year, up $116.4 billion from 2022's level, while interest payouts from its reverse repo facility was $104.3 billion last year, from $41.9 billion the prior year.
Meanwhile, the income the Fed earned from bonds it owns was at $163.8 billion last year, little changed from 2022.
The Federal Reserve has voted to hold interest rates steady for the fifth consecutive meeting today, but has indicated it is sticking with plans to cut rates multiple times this year
The Fed can create money to fund its operations when dealing with operating losses which means it faces no obstacles to operate. It captures its loss in an accounting device called a deferred asset.
The official level of the deferred asset stood at $133.3 billion at the close of 2023. As of March 20, it had risen to $157.8 billion and it is unclear how much larger it will get.
When the Fed returns to profitability it will use excess earnings to reduce the deferred asset and when it is extinguished the Fed will start returning excess profits to the Treasury again.
Fed officials have noted they've handed back substantial sums to the Treasury over recent years.
A St. Louis Fed report last year said it could take years before the Fed is able to once again return profits to the government.
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