The Federal Reserve just published its numbers for 2024, like any other bank would do, and its income statement presented a loss of $77.6Bn. It’s the second consecutive year of losses, since 2023 also was a losing year with $114.3Bn. This loss is the result of marking to market bond portfolio holdings that were aquired during QE where rates were zero, and are now severely underwater with rates at 4.25%. The difference with a regular bank is that they don’t need to put capital behind those loses, since they can create it. They will simply wait until they decide to lower interest rates enough for the bond portfolio to erase the loss, entirely due to interest rate risk, or the portfolio runs off. That’s why the loss is called a deferred asset. They simply need to wait. However, It does matter in the sense, they cannot send any gains to the Treasury, which benefited for years of the Fed’s positive returns on their bond portfolio, putting more pressure on the country’s finances. And it does matter if interest rates were to go up again due to inflation. Then we would have a Fed with a bigger negative capital problem, which in itself will not limit the Fed’s ability to operate normallly, but it will put pressure on them to print more money, creating inflation, which is the problem they were created to fix.
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