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Why Is the Federal Reserve Operating at a
January 23, 2023
The Federal Reserve (Fed) is self-funded and normally earns more income than needed to cover its
expenses and capital transfers, remitting the difference to Treasury. For 2022, the Fed remitted $76
billion. However, since September 2022, the Fed’s expenses exceeded its income by $18.8 billion,
causing remittances to temporarily cease. Depending on future interest rates, net income could remain
negative for the next couple of years, and remittances could cease for longer. This Insight explains why
this occurred and what it means for policy.

Why Did the Fed Suffer Losses? How Long Will They
As a result of its monetary policy operations, the Fed holds $8.4 trillion in Treasury and mortgage-backed
securities (MBSs) on its balance sheet. The Fed earns income on these securities, which, along with other
income and fees it charges, are used to finance its operating expenses and the interest paid on bank
reserves and reverse repurchase agreements (reverse repos), two of its main liabilities. The difference
between income and expenses is called net income, similar to profits. Net income is used exclusively to
(1) pay statutorily required dividends to shareholders and (2) increase the Fed’s surplus when it is below
its statutory cap. The remainder is transferred to the Treasury (called remittances), where it is added to the
federal government’s general revenues. Remittances do not affect federal spending levels, so they
effectively make the budget deficit and federal debt smaller than they otherwise would be.
The Fed’s balance sheet consists mostly of longer-term assets and very short-term liabilities. Typically,
longer-term assets have higher yields than short-term liabilities do, so net income is positive. But net
income has been negative since September 2022 because interest rates rose sharply in 2022. Thus, the
interest rate it pays on bank reserves and reverse repos—currently over 4%—became higher than the
yield on securities acquired when interest rates were much lower. Interest income rose in 2022, but
interest expense rose more—from $5.7 billion in 2021 to $102.4 billion 2022. The Fed acquired large
holdings of low-yielding securities through quantitative easing (QE) to support the economy during the
pandemic. For example, at the end of 2021, over 70% of its MBS holdings were issued in 2020 or 2021,
and 70% had coupon rates of 2.5% or lower.
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If remittances are zero in 2023, it will be the first year that has happened since 1934. (In some years,
remittances were statutorily required. In years with no statutory requirement, remittances were the result
of positive net income.) The yield on the Fed’s assets will eventually exceed the yield on its liabilities
again because short-term interest rates will fall or low-yielding assets on the Fed’s balance sheet will
eventually mature and be replaced by higher yielding assets. At that point, net income will become
positive again, but projections suggest that may take a few years. Short-term interest rates are unlikely to
fall significantly until inflation becomes low again. (So long as the Fed continues to hold its securities to
maturity, as planned, the Fed will not realize any losses through sales of these securities.)

How Do Current Losses Compare to Past Remittances?
Although Fed losses will reduce federal revenues, any temporary losses would be expected to be more
than offset by unusually large remittances from 2009 to 2022 (see Figure 1). Beginning in 2009, its net
income and remittances increased significantly as a result of its balance sheet growth caused by QE and
low short-term interest rates on its liabilities. Between 2009 and 2022, annual remittances have been
between $47 billion and $117 billion each year. Before 2009, the largest annual remittance ever was $35
billion. Moreover, this considers only the direct effect of QE on the federal budget. If QE returned the
economy to full employment faster, that also had a positive indirect effect on the federal budget.
Figure 1. Fed Interest Income and Expenses and Net Remittances
2000-2022 (Projected)

Source: CRS calculations, Congressional Budget Office.

Will the Fed Go Bankrupt or Need to Be Bailed Out?
Private companies hold capital to prevent losses from causing insolvency. Losses do not affect the Fed’s
ability to honor its liabilities (as with a private company), and its creditors cannot compel it to declare
bankruptcy when losses exceed capital.
Partly because of the statutory limit on its surplus, the Fed holds very little capital relative to its liabilities,
and losses since September 2022 have been larger than its entire surplus. But unlike a private company,
the Fed does not reduce its capital, become insolvent, or require a capital infusion to maintain solvency in

Congressional Research Service


response to losses. Instead, under its accounting conventions, it registers the losses as a deferred asset.
Positive net income in future years would be directed to eliminating this deferred asset instead of being
remitted to Treasury. Thus, positive net income will resume before remittances.

Implications and Options
The Fed is not profit-maximizing—its remittances are a byproduct of monetary policy, not the metric to
judge the success of monetary policy. Losses are a sign not of mismanagement but that its interest-bearing
liabilities had higher yields than its interest-bearing assets. If the Fed based monetary policy on concerns
about its profits and losses, it would detract from achieving its statutory mandate of maximum
employment and stable prices. (If the Fed reverted to its pre-2008 framework for conducting monetary
policy, average profits would be lower but losses would be less likely, however.)
Nevertheless, losses might have political implications—notably for the Fed’s independence—or, if
misunderstood, could negatively affect market or public confidence in the Fed. If Congress were
concerned about the Fed’s financial position or how it is perceived, it could consider reversing statutory
reductions in the Fed’s surplus (which were “pay fors” in unrelated bills). Or Congress could eliminate
the Fed’s surplus, as it is not used to absorb losses. Alternatively, H.R. 8918 from the 117th Congress
would have terminated the Fed’s financing of the Consumer Financial Protection Bureau’s budget until
the Fed deferred asset was eliminated.

Author Information
Marc Labonte
Specialist in Macroeconomic Policy

This document was prepared by the Congressional Research Service (CRS). CRS serves as nonpartisan shared staff
to congressional committees and Members of Congress. It operates solely at the behest of and under the direction of
Congress. Information in a CRS Report should not be relied upon for purposes other than public understanding of
information that has been provided by CRS to Members of Congress in connection with CRS’s institutional role.
CRS Reports, as a work of the United States Government, are not subject to copyright protection in the United
States. Any CRS Report may be reproduced and distributed in its entirety without permission from CRS. However,
as a CRS Report may include copyrighted images or material from a third party, you may need to obtain the
permission of the copyright holder if you wish to copy or otherwise use copyrighted material.

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