According to a statement released Friday, the Federal Reserve’s 2023 expenses exceeded its earnings by $114.3 billion, its largest-ever annual operating loss.
These results are preliminary and have not been audited yet.
This loss forced the U.S. central bank to forgo remittances to the Treasury as interest rates climbed, according to Bloomberg.
The Federal Reserve’s expenses exceeded its earnings in 2023, forcing the US central bank to forgo remittances to the Treasury as interest rates soared https://t.co/MQnS21lh9E
— Bloomberg Markets (@markets) January 12, 2024
The Fed’s interest income on its securities total $163.8 billion in 2023, a $6.2 billion decrease from 2022.
Furthermore, interest expenses almost tripled, to $281.1 billion in 2023 from $102.4 billion in 2022.
According to The Wall Street Journal, the deficit is a consequence of the Fed’s efforts to stimulate the economy and combat high inflation.
From the @WSJ on the #FederalReserve's "operating loss of $114.3 billion last year, its largest ever."
(For those interested in details, here is the link to the #Fed's "preliminary financial information for the Federal Reserve Banks’ income and expenses in 2023:… pic.twitter.com/W7PQu3lsxM— Mohamed A. El-Erian (@elerianm) January 13, 2024
The Fed incurred higher costs on interest payments to financial instructions than it gained from the securities it purchased during periods of lower interest rates. This outcome is a result of the Fed’s decision to raise its short-term interest rate to over 5% last year, a two-decade high.
The Fed is required by law to send its earnings to the Treasury. However, in 2022, these earnings turned to losses, resulting in an increased federal deficit.
Prior to 2022, in its 109-year existence, the Fed had never halted the transfer of funds to the Treasury for a substantial period of time as a consequence of operating losses.
The Fed’s profitability in the future depends on when it decides to lower interest rates. The Fed establishes rates with the aim of maintaining low inflation and promoting employment, with less focus on its own profit.
According to the Federal Open Market Committee’s minutes from its December meeting, “Almost all participants indicated that … a lower target range for the federal funds rate would be appropriate by the end of 2024.”
