Who Owns Federal Reserve Losses and How Will They Impact Monetary Policy?

by | Jun 27, 2022 | Saul's Insights | 0 comments

Lesson Plan For The Future

The Federal Reserve Bank

What happens when the Federal Reserve has losses?

Who pays?


Who Owns Federal Reserve Losses and How Will They Impact Monetary Policy?

A White Paper by Paul H. Kupiec and Alex J. Pollock
American Enterprise Institute

This is a complex tale, but this whitepaper lays out the pieces.


  • For the first time in its 108-year history, the Federal Reserve System faces massive and growing mark-to-market losses and is projected to post large operating losses in the near future.
  • It is estimated that between December 31, 2021 and the end of May 31, 2022, the Federal Reserve lost $540 billion in market value on its huge portfolio of investments in Treasury bonds and
    mortgage securities.
  • To put this loss in perspective, $540 billion is equivalent to 60 percent of the value of the Federal Reserve System’s entire asset holdings on September 1, 2008, just prior to the onset of the financial crisis. $540 billion is more than 13 times the Federal Reserve System’s recently reported consolidated capital of $41 billion meaning that the market value of the Fed’s outstanding liabilities—primarily member bank reserves and Federal Reserve notes—exceed the market value of the assets the Fed owns by about half a trillion dollars.

As interest rates go higher, this loss increases. Moreover, if the Fed’s inflation-fighting campaign eventually requires short term interest rates to rise above 2.7 percent, we project the Federal Reserve will experience net operating losses, in addition to its mark-to-market losses.


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