• Discounts and special offers
  • Subscriber-only articles and interviews
  • Breaking news and trending topics

Already a subscriber?

By signing up, you accept Moneywise's Terms of Use, Subscription Agreement, and Privacy Policy.

Not interested ?

Why the Fed is dealing with higher operating costs

After covering day-to-day operating costs, the central bank usually sends off any profits from services it provides to the financial system or on its securities portfolio to the Treasury, which uses the revenue to offset federal deficits.

Since 2022, the Fed has lifted its target rate from near-zero levels to the current 5.25% to 5.5% range with an aim of cooling inflation. As a result, its expenses surpassed its earnings last year.

The audited financial statements revealed interest payments to banks on excess reserves parked at the Fed hit a record $176.8 billion last year, almost triple the amount paid in 2022.

Interest payouts from the reverse repo facility also swelled from $41.9 billion to $104.3 billion last year.

Don't miss

What this means for the economy

Despite the sizable loss, the Fed has often emphasized that net negative income does not impact the central bank’s operations or its ability to control monetary policy.

When there’s a shortfall in earnings, the Fed uses a deferred asset, which essentially works as an IOU by the Fed to itself, to fund operations. So, when the central bank becomes profitable once more, it can divert the excess earnings to pay down the deferred asset until it reaches zero.

Once the deferred asset is fully paid off, the Fed can continue to hand excess profits over to the Treasury again.

However, a November report from the St. Louis Fed estimates the central bank will carry this deferred asset until mid-2027, which means it’ll be a few years before it can return profits to the government.

What to read next

Serah Louis is a reporter with Moneywise.com. She enjoys tackling topical personal finance issues for young people and women and covering the latest in financial news.


The content provided on Moneywise is information to help users become financially literate. It is neither tax nor legal advice, is not intended to be relied upon as a forecast, research or investment advice, and is not a recommendation, offer or solicitation to buy or sell any securities or to adopt any investment strategy. Tax, investment and all other decisions should be made, as appropriate, only with guidance from a qualified professional. We make no representation or warranty of any kind, either express or implied, with respect to the data provided, the timeliness thereof, the results to be obtained by the use thereof or any other matter.