The Federal Reserve lost $77.6 billion in 2024.
And, by the way, a Fed loss is ultimately your loss.
The central bank began bleeding into the red at the end of 2022. In 2023, it reported an operating loss of $114 billion.
In addition to its operating loss, the Fed reported unrealized losses on its holdings of Treasury bonds and mortgage-backed securities totaling $1.06 trillion. This figure represents an increase from the $948 billion reported at the end of 2023.
Unrealized losses represent the difference between the face value of the securities when they mature and their current market value.
Why is the Fed losing money?
While most people see the central bank as an extension of the government, it is essentially a business and is set up to make money.
At the moment, it is not.
The Fed's losses are a direct result of its rate hikes, and its financial condition offers a behind-the-scenes view of the unseen consequences of its war on price inflation.
After insisting for months that price inflation was "transitory," the Fed was forced to take action and begin raising interest rates in March 2022. This is the root cause of its current operating losses.
Simply put, by raising interest rates, the bank had to pay commercial banks more for the money they deposited with the Fed. Meanwhile, its interest income remained flat, as Treasury bonds and mortgage-backed securities on its balance sheet continued to generate lower interest income. From there, it's a simple math problem: the bank has paid more interest to banks than it has collected on its asset portfolio.
The root of this problem goes back to the financial crisis of 2008 and the Great Recession, when the Fed bought trillions of dollars in low-yielding securities during multiple rounds of quantitative easing (QE), followed by an even larger round of bond buying during the pandemic years. The Fed purchased these Treasury bonds and mortgage-backed securities at a time when interest rates were kept artificially low due to its own monetary policy.