Fed Posts $18.7 Billion Loss as Inflation, Pandemic Costs Linger

The Federal Reserve lost $18.7 billion last year, as it continues to recover from pandemic stimulus programs and inflation.

That's according to audited financial statements the Fed released Wednesday and marks the third year of losses for the institution. The Fed lost $77.6 billion in 2024 and $114.4 billion in 2023.

When the Fed's costs exceed income, the Fed creates a "deferred asset," a negative liability that it intends to pay down when it returns to positive income.

Deferred assets rose from $216 billion in 2024 to $243.5 billion last year, according to the new accounting.

The Fed's roller coaster to profitability

The Fed generates income from interest earned on securities it's acquired, such as agency mortgage-backed securities and Treasury securities. It also obtains fees for some regulatory and supervisory services.

For much of its history, these revenues more than compensated for the Fed's expenses, like interest payments on reserve balances and securities, and the Fed's own operating costs. When it runs a surplus, the Fed returns these to the U.S. Treasury.

The COVID-19 pandemic interrupted that cycle. The Fed began to lower the federal funds rate target in 2019. But when the pandemic began in March 2020, the Fed lowered the interest rate almost to zero, and began asset purchases that grew its balance sheet.

Then, the inflation cycle immediately after the pandemic led to a rapid increase in rates. The Fed says its efforts to return inflation to the 2% target were the fastest in 40 years. But its operating costs began to exceed income in September 2022.

Fed Chair Jerome Powell said last fall the Fed has taken some lessons from the rapid-fire pace of actions it took to counteract the pandemic's economic effects. As of October, it reduced its balance sheet by $2.2 trillion, from 35% of gross domestic product to 22%.

"With the clarity of hindsight, we could have—and perhaps should have—stopped asset purchases sooner," Powell said in October. "Our real-time decisions were intended to serve as insurance against downside risks."

But interest rate policy remains contentious. President Donald Trump has been strongly critical of the Fed's reluctance to cut interest rates in the years since then. And he's leveled particular criticism at Powell.

Most recently, the Fed has not cut interest rates this year because of fears inflation is stickier than expected. Tariff policy and the new conflict in Iran create even further economic uncertainty.

Trump has since nominated Kevin Warsh to succeed Powell, whose term ends this year.