Fed’s interest rate hike ＂hurts the enemy by 1000＂： a record blood loss last year!
Cailian News on March 27th (Editor Huang Junzhi)On Tuesday (26th) EST, the Federal Reserve announced the audited annual financial statements for 2023. This report reveals that raising interest rates is really "hurting the enemy by 1000"-it can really cool inflation, but its own interest expenses have surged, and the Federal Reserve recorded a record loss last year.
The report shows that as of December 31, 2023, the total assets of the Federal Reserve were about 7.8 trillion US dollars, a decrease of 0.7 trillion US dollars from the previous year. The total assets are mainly composed of US Treasury bonds, federal agency bonds and government-backed enterprise mortgage-backed securities (MBS).
The specific data are as follows:
The total expenditure of the Federal Reserve in 2023 exceeded its income by $114.3 billion, the highest annual loss on record.In contrast, in 2022, the bank recorded a net profit of 58.8 billion US dollars;
In 2023, the interest income of securities obtained by the Federal Reserve through open market operations totaled $163.8 billion, a decrease of $6.2 billion compared with 2022;
In 2023, the Federal Reserve’s total interest expenditure was $281.1 billion, 2.75 times that of $102.4 billion in 2022.Among them, the interest expense of deposit institution’s reserve balance was 176.8 billion US dollars, an increase of 116.4 billion US dollars over 2022; The interest expense of the Federal Reserve’s securities sold under the repurchase agreement was $104.3 billion, an increase of $62.4 billion compared with 2022.
The total loan interest income provided to deposit institutions and other qualified borrowers (including bank fixed-term financing plan and cheque protection plan liquidity tools) is 10.4 billion US dollars;
The Federal Reserve realized a net income of $100 million from the emergency credit facilities established in response to the Covid-19 pandemic;
In 2023, the operating expenditure was $9.2 billion, including $2.9 billion in board fees, currency costs and operating expenses of the Consumer Financial Protection Bureau.
According to the law, the Fed is required to turn over all profits to the Ministry of Finance after paying the operating expenses. The Federal Reserve earns income from services it provides to the financial system and interest income on securities it owns. In recent years, with extremely low interest rates and a large number of bond holdings, it has made considerable profits.
However, the move by the Federal Reserve to substantially raise the federal funds rate from the spring of 2022 has subverted the financial situation of the central bank. In order to alleviate inflationary pressure, the Federal Reserve raised the policy interest rate from near zero to the current 5.25%-5.5%.
The policy interest rate of the Federal Reserve is the federal funds rate, which is the interest rate at which a depository institution (mostly a bank) lends overnight loans to another depository institution without guarantee by using the funds in hand. The cash deposited by banks, money funds and other financial companies in the Federal Reserve will also charge interest with reference to the policy interest rate. Therefore, in a high interest rate environment, the Fed needs to pay more interest.
However, the bank has repeatedly stressed that the net loss will not hinder its operation or its ability to implement monetary policy. It is understood that the Fed can create funds to fund its operations when dealing with operational losses, which means that its operations will not encounter any obstacles. It records losses in an accounting instrument called deferred assets.
By the end of 2023, the official level of deferred assets was $133.3 billion. As of March 20, the figure has risen to $157.8 billion, and it is not clear how much it will increase this year.