Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Fed carrying $330 billion in unrealized losses on its assets according to Q1 financial statement

Economy May 27, 2022 04:20PM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: The Federal Reserve building is seen before the Federal Reserve board is expected to signal plans to raise interest rates in March as it focuses on fighting inflation in Washington, U.S., January 26, 2022. REUTERS/Joshua Roberts

WASHINGTON (Reuters) - The U.S. Federal Reserve is carrying $330 billion in unrealized losses on its holdings of U.S. Treasury and mortgage-backed securities as of the end of March, according to newly released financial statements showing the impact of rising interest rates on the market value of the Fed's balance sheet.

The central bank's holdings of nearly $9 trillion in assets still allowed the Fed to remit $32.2 billion to the U.S. Treasury in the first quarter of 2022, according to the documents.

But the losses on the Fed's investments, an $8.5 trillion portfolio that surged higher through asset purchases designed to keep financial markets stable through the pandemic, pose a potentially tough political problem for the central bank.

Bill Nelson, chief economist at the Bank Policy Institute, said that adjusting for the appreciation in its assets the Fed had seen through the end of last year, the unrealized losses were an even larger $458 billion.

Criticized for continuing to buy assets even as the economy was well on the way to healing from the pandemic, it is now trying to reverse course and shrink its holdings, particularly of mortgage backed securities.

If it chooses to speed the process by selling some of those assets, the unrealized "paper" losses would have to be booked as a tangible hit.

According to the Fed's first quarter financial statement, the Fed's $2.77 trillion in MBS purchases has declined on a fair market value basis by $164 billion, and as of March 31 was worth $2.606 trillion.

Mortgage rates are even higher now, and as with any interest-bearing security as market interest rates have risen those losses have deepened.

A New York Fed report earlier this week flagged potentially large losses to the Fed's portfolio, given that interest rates are expected to continue rising.

The report also flagged a further issue: As the Fed raises its short term interest rate, it will do so by offering larger payments to banks for the reserves they deposit at the Fed, increasing the central bank's expenses. As its balance sheet shrinks, meanwhile, its interest earnings will decline, potentially pushing the Fed towards operating losses.

New York Fed officials in the report said the Fed would be able to fund its operations and conduct monetary regardless.

But it could mean sharp declines in a key metric watched closely by elected official: the profits that the central bank remits to the U.S. Treasury.

Those have climbed during the era of "quantitative easing" and hit a record $107 billion last year, but could fall to zero as Fed monetary policy shifts.

Fed carrying $330 billion in unrealized losses on its assets according to Q1 financial statement
 

Related Articles

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with other users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind:  

  •            Enrich the conversation, don’t trash it.

  •           Stay focused and on track. Only post material that’s relevant to the topic being discussed. 

  •           Be respectful. Even negative opinions can be framed positively and diplomatically. Avoid profanity, slander or personal attacks directed at an author or another user. Racism, sexism and other forms of discrimination will not be tolerated.

  • Use standard writing style. Include punctuation and upper and lower cases. Comments that are written in all caps and contain excessive use of symbols will be removed.
  • NOTE: Spam and/or promotional messages and comments containing links will be removed. Phone numbers, email addresses, links to personal or business websites, Skype/Telegram/WhatsApp etc. addresses (including links to groups) will also be removed; self-promotional material or business-related solicitations or PR (ie, contact me for signals/advice etc.), and/or any other comment that contains personal contact specifcs or advertising will be removed as well. In addition, any of the above-mentioned violations may result in suspension of your account.
  • Doxxing. We do not allow any sharing of private or personal contact or other information about any individual or organization. This will result in immediate suspension of the commentor and his or her account.
  • Don’t monopolize the conversation. We appreciate passion and conviction, but we also strongly believe in giving everyone a chance to air their point of view. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (5)
Santosh Oak
Santosh Oak May 29, 2022 9:06AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What losses? They will print more money to make it up. They are building a huge bubble.Are they even telling the truth?
dav lo
dav lo May 27, 2022 6:10PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Liars
Benjamin USA
Benjamin USA May 27, 2022 4:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
All of this is known and not surprising. This is Just reporting of technical bookkeeping.
Criz Criz
Criz Criz May 27, 2022 4:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Technicaly they are bankrupt
Warren Wesley
Warren Wesley May 27, 2022 4:39PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
allow assets to mature off balance sheet, and no loss incurred. just adjustment in values due to rise in interest rates.
Jose Cabreja
Jose Cabreja May 27, 2022 4:33PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
The FED has no losses ever.
Nick Roth
Nick Roth May 27, 2022 4:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Could you imagine having $330B in losses lmao
Criz Criz
Criz Criz May 27, 2022 4:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
They will fix it.. HAHAHA
Warren Wesley
Warren Wesley May 27, 2022 4:15PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
rising interest rate environment. best to allow assets to mature instead of aggressive sell off.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Continue with Google
or
Sign up with Email