The Federal Reserve reported an operating loss of $18.7 billion last year, marking its third straight year in the red. While the loss is significantly smaller than in 2023 and 2024, it reflects the ongoing impact of higher interest rates used to fight inflation. The Fed is self-funded and does not rely on taxpayer dollars, meaning the losses do not affect its daily operations. The shortfall happens when the central bank pays more interest on bank reserves than it earns from its bond portfolio. Those higher payments have been a direct result of aggressive rate hikes that began in 2022. Officials say profitability is not the Fed’s primary goal, and the central bank expects to return to profits as interest rates ease. Until then, the Fed is tracking losses through a “deferred asset,” which has grown to more than $243 billion and will be paid down before future profits are returned to the Treasury.
