The Federal Reserve reported a smaller loss for its operations last year compared to 2023, as its efforts to control inflation kept its financial situation in the red. The comprehensive net loss totaled $77.5 billion, a decline from $114.6 billion the previous year. The Fed last achieved profitability in 2022.
The 2024 loss is a final audited figure and marks the first public insight into the central bank's finances for the full year, following a trend of releasing preliminary numbers at the year's outset. This year, the Fed disclosed its financial data through a detailed 65-page document, a shift from its previous practice of summarizing information in a press release.
Although not yet a significant concern, the Fed's losses have raised apprehensions about potential negative scrutiny from lawmakers. These concerns have heightened due to the critical stance toward the central bank from President Biden and his ally Elon Musk, who advocate for aggressive cuts to government spending.
The Fed's losses for last year were largely influenced by its strategies to decrease high inflation levels. As a self-funding institution, the Fed generates revenue from the securities it holds and the services it provides to the financial sector. By law, any excess earnings are transferred to the U.S. Treasury, and recent years have seen substantial payouts.
However, in 2022, circumstances shifted dramatically as inflation reached levels not seen in decades. The Fed responded by aggressively increasing its short-term interest rate from near-zero in the spring to a peak of 5.25%-5.50% by July 2023. A subsequent one-percentage-point reduction in rates, due to falling inflation, contributed to a lower loss in 2024, with monetary policy remaining steady.
To manage its interest rate target, the Fed compensates banks, money market funds, and other eligible firms for holding cash. Rising interest costs have overtaken its earnings, resulting in paper losses that central bankers assert do not hinder their operations or monetary policy effectiveness.
In 2024, the Fed's total interest-related costs reached $226.8 billion, compared to $281.1 billion in the previous year. It earned $158.8 billion in interest income, down from $174.5 billion in 2023.
The Fed can print money to support its operations and tracks its overall loss through a deferred asset accounting measure, which amounted to $224.4 billion as of Wednesday. The central bank intends to repay this loss upon returning to profitability. Once that figure reaches zero, it will start reinstituting cash transfers to the Treasury, though analysts project that it could be years before the Fed achieves this state.