The Fed Owes Money – The Central Bank Has Been Losing Money
Switching over to the other major central bank, the Federal Reserve is facing something unprecedented when it comes to their money. The central bank of the United States has been losing money in the last few weeks because of their aggressive rate hikes. This might sound concerning and counterintuitive for a bank, but it’s a lot deeper than what appears at face value.
The Fed is paying banks and funds interest because they are keeping their money at the bank. These interest payments are exceeding the income the Fed receives through the bonds it has bought in the last decade. Continued losses would be a bad thing, but the bank has earned profits north of $100 billion in the last few years, meaning it should be covered, and they can conduct monetary policy however they want. Surpluses end up going as remittances to the Treasury, and federal deficits are soothed through this method. Although it is fine now, economists warn that losses could increase as the Fed continues to raise interest rates, and this is going to happen for a while. Analysts from Barclays estimate that losses will balloon to $60 billion next year, and that the Federal Reserve won’t start paying remittances to the Treasury until 2026, which lines up with what officials have in mind. These numbers have a lot of room to change with the upcoming inflation report, which will set up the basis for rate hikes after this upcoming one in November.
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I am not a financial advisor and my comments should never be taken as financial advice. Investments come with risk, so always do your research and analysis beforehand.