Federal Reserve Reports Record Operating Losses of $114.3 Billion in 2023

Federal Reserve Reports Record Operating Losses of 4.3 Billion in 2023

(Bloomberg) — Federal Reserve spending outpaced its 2023 profits by $114.3 billion, its largest operating loss on record, forcing the U.S. central bank to forgo remittances to the Treasury as interest rates remain high.

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Interest spending, which includes reserve balances during the Fed’s reverse repurchase operations, nearly tripled to $281.1 billion in 2023, according to audited financial statements released Tuesday. Meanwhile, the Fed’s interest income earned on its asset portfolio totaled $163.8 billion last year, up from about $170 billion in 2022.

After covering its daily operating expenses, the central bank is required to send the money it earns on its securities portfolio to the Treasury, where that revenue helps offset federal deficits.

When spending exceeds profits, as has been the case since late 2022, the Fed issues a deferred asset to the Treasury, which the central bank says has no implications for the conduct of monetary policy. This deferred asset increased by $116.7 billion last year, to a record high of $133.3 billion, the Fed said.

These figures largely confirm the information contained in the Fed’s preliminary financial statements, released in January.

The Fed earns income on the securities in its portfolio and pays interest on reserves held at the Fed by banks. This produced massive profits when rates were near zero and huge payments to the Treasury, but that changed when the Fed started raising rates in March 2022.

Interest payments to banks on excess reserves deposited at the Fed totaled a record $176.8 billion last year, nearly triple the amount paid in 2022.

Most regional Fed banks began suspending remittances to the Treasury in September 2022.

(Updates with additional information starting in the fifth paragraph.)

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