Fed’s operating losses swelled to record US$114.3 billion in 2023

THE Federal Reserve’s expenses exceeded its earnings in 2023 by US$114.3 billion, its largest operating loss ever, forcing the US central bank to forgo remittances to the Treasury as interest rates remain elevated.

Interest expenses, which includes reserves balances at the Fed’s reverse repo operations, nearly tripled to US$281.1 billion in 2023, according to audited financial statements released on Tuesday (Mar 26). Meanwhile, the Fed’s interest income earned on its portfolio of assets totalled US$163.8 billion last year, compared with roughly US$170 billion in 2022.

After covering its day-to-day operating expenses, the Fed is required to send the money it earns on its securities portfolio to the Treasury, where the revenue helps offset federal deficits.

When expenses exceed earnings, as they have since late 2022, the Fed issues a deferred asset to the Treasury, which the central bank said has no implications for the conduct of monetary policy. This deferred asset grew by US$116.7 billion last year, to a record US$133.3 billion, the Fed said.

The Fed receives income from the securities in its portfolio and pays interest on reserves held at the Fed by banks. That generated massive earnings when rates were nearly zero, and huge payments to the Treasury, but that changed as the Fed began raising rates in March 2022.

Most regional Fed banks began suspending remittance payments in September 2022. BLOOMBERG