Fed Is Losing Billions, Wiping Out Profits That Funded Spending

• Fed remittances owed to the US Treasury reached a negative $5.3 billion as of Oct. 19 — a sharp contrast with the positive figures seen as recently as the end of August. A negative number amounts to an IOU that would be repaid via any future income.
• The Reserve Bank of Australia posted an accounting loss of A$36.7 billion ($23 billion) for the 12 months through June, leaving it with a A$12.4 billion negative-equity position.
• Dutch central bank Governor Klaas Knot, warned last month he expects cumulative losses of about 9 billion euro ($8.8 billion) for the coming years.
• The Swiss National Bank reported a loss of 95.2 billion francs ($95 billion) for the first six months of the year as the value of its foreign-exchange holdings slumped — the worst first-half performance since it was established in 1907.

As for the Fed, Republicans have in the past voiced opposition to its practice of paying interest on surplus bank reserves. Congress granted that authority back in 2008 to help the Fed control interest rates. With the Fed now incurring losses, and the Republicans potentially taking control of at least one chamber of Congress in the November midterm elections, the debate may resurface.

The Fed’s turnaround could be particularly notable. After paying as much as $100 billion to the Treasury in 2021, it could face losses of more than $80 billion on an annual basis if policymakers raise rates by 75 basis points in November and 50 basis points in December — as markets anticipate — estimates Stephen Stanley, chief economist for Amherst Pierpont.

Without the income from the Fed, the Treasury then needs to sell more debt to the public to fund government spending.