Federal Reserve losses breached the $100 billion mark, central bank data released on Thursday showed, and they're likely to go a lot higher before the red ink stops.
The U.S. central bank is continuing to pay out more in interest costs than it takes in from the interest it earns on bonds it owns and from the services it provides to the financial sector. While there's considerable uncertainty around how it will all play out, some observers believe Fed losses,William English, a former top central bank staffer now at Yale University, said he sees a "peak" loss of around $200 billion by 2025.
A money-losing Fed has not been a surprise given its aggressive campaign to raise interest rates, which has taken the benchmark overnight interest rate from the near-zero level in March 2022 to its current 5.25%-5.50% range. With inflation pressures ebbing, it's widely expected that the Fed is done with its rate increases, or close to it.
"The pace of losses will come down, even if interest rates stay high, because reserves and are declining as securities run off, and new purchases of securities are earning the new, higher, rates," English said. But he acknowledged "that's all very rough" given how many factors and uncertainties are at play.
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