Federal Reserve Losses Surpass $100B, Predicted To Rise Further

The Federal Reserve has recorded over $100 billion in losses, according to data released by the central bank. These losses are projected to increase significantly.

What Happened: The U.S. Federal Reserve is paying out more in interest costs than its earnings from bond interests and financial sector services. Experts predict that this trend, which began a year ago, could see the losses double, reported Reuters.

William English, a former central bank employee, now at Yale University, predicted a peak loss of around $200 billion by 2025. Similarly, Derek Tang of forecasting firm LH Meyer predicted a loss ranging between $150 billion and $200 billion by next year.

The Fed marks its losses as a deferred asset, an accounting measure indicating future coverage before profits can be returned to the Treasury. Despite these losses, the Fed maintains that its ability to conduct monetary policy and achieve its goals remains unimpaired.

See Also: Peter Schiff Says Fed May Have ‘Secretly Given Up’ 2% Inflation Target: ‘New Unspoken Mandate Will Be …’

Why It Matters: While interest rate increases are expected to slow down, the losses are likely to continue due to the current level of short-term rates. The cessation of losses is expected to be primarily due to the Fed’s ongoing process of balance sheet reduction.

The losses are also linked to the Fed’s aggressive bond purchases during the COVID-19 pandemic. The central bank has shed about $1 trillion in Treasury and mortgage bonds over the last year and plans to continue this trend.

Despite the current financial situation, some, including New York Fed President John Williams, remain optimistic about the Fed’s ability to return to previous levels of profitability.

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