Higher Interest Rates Fuel Losses at the Federal Reserve

The Fed has been aggressively rising the interest rates to fight inflation due to the high inflation the economy is currently experiencing. But what has this been causing? The Fed has actually been losing money. 

The Fed operating losses have been growing in recent weeks. This is due to the money it has been paying to banks and money market funds, it now exceeds the income it has been earning $8.3 trillion in treasury and mortgage backed securities. The head economists at Barclays have predicted it wont see a profit until 2026. If the Fed continues to do so they won’t have to tuen to congress for funding, they will instead create an IOU. This will go on their balance sheet and be listed as a deferred asset. Then in the future when they have a surplus it would then pay off the IOU. 

In September when the Fed raised rates to 3%-3.25%, they began earning less on its assets than it pays out in liabilities. They are now expected to raise rates by .75% on Wednesday after their two day meeting concludes. However this operating loss does not affect our monetary policy.