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| US Economy : Heaviest loss ever due to increased lending rates, Fed becomes 'Lord of the Hill'. |
The Fed began raising its benchmark lending rate in March 2022 as policymakers sought to stem price increases that had pushed inflation well above its long-term target of 2%. The Fed then raised rates to a 22-year high and has kept them steady ever since, leading to a sharp increase in the interest costs the Fed has to pay.
According to a report released by the Fed on January 12, the interest expense that this bank had to pay exceeded its income by 114.3 billion USD.
Yet even as the Fed suffers its worst operating loss ever in 2023, it has not asked Congress or the Treasury for more money to cover operating costs.
Normally, the Fed’s 12 regional banks transfer their income from holding securities to the Treasury, after deducting costs such as interest they pay the banks. But when the Fed loses more than it earns, as has been the case since September 2022, the Fed simply declares those losses as “deferred assets” and stops paying the Treasury.
When the Fed has more money than it has to pay out — which can happen when interest rates fall — it will start paying profits to the Treasury as profits exceed deferred assets.
With the Fed losing money in 2023 and its accumulated deferred assets of $133 billion since the start of losses in September 2022, the process of paying profits to the Treasury could take a long time, observers say.
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