WASHINGTON — The Federal Reserve reported an operating loss of $18.7 billion in 2025, marking its third consecutive year in the red, according to audited financial statements released Wednesday.
The loss was significantly smaller than in prior years, following losses of $114.3 billion in 2023 and $77.6 billion in 2024, according to the Wall Street Journal.
The central bank, which is self-funded and does not rely on congressional appropriations, said the losses do not affect its day-to-day operations, the Journal report stated. Unlike most federal agencies, the Fed does not request funding from the Treasury Department.
“The Fed earns income primarily from its large portfolio of Treasury securities and mortgage-backed bonds,” the Journal explained. “However, it must also pay interest on reserves that commercial banks hold at the central bank. Operating losses occur when those interest expenses exceed income from its holdings.”
‘Aggressive Campaign’
According to The Wall Street Journal, the recent losses stem largely from the Fed’s aggressive campaign to raise interest rates beginning in 2022 to combat inflation. Higher rates increased the interest the Fed pays on bank reserves, outpacing returns on its bond portfolio.
While generating profits is not a policy objective, the Fed historically returned excess earnings to the Treasury after covering expenses. From 2012 through 2021, it remitted more than $870 billion, including $109 billion in 2021 alone.
An ‘IOU’
To manage ongoing losses, the Fed uses an accounting mechanism known as a “deferred asset,” effectively an IOU it will repay with future earnings before resuming remittances to the Treasury. The deferred asset grew to $243.5 billion in 2025, up from $216 billion a year earlier, the Journal stated.
The gap between the Fed’s interest income and expenses has narrowed as rates have declined. The central bank currently pays about 3.65% on roughly $3 trillion in reserves, down from 4.4% on $3.4 trillion a year earlier.
According to the Journal, projections from the Federal Reserve Bank of New York last year suggested the Fed could return to profitability in 2026 and eliminate the deferred asset by the end of the decade.
Political Scrutiny
The Fed’s finances have drawn political scrutiny. Former President Donald Trump has criticized the central bank over cost overruns tied to a $2.5 billion renovation of its headquarters and for not cutting interest rates more quickly. The renovation project has been the subject of a federal investigation involving Fed Chair Jerome Powell, though a judge recently dismissed Justice Department subpoenas related to the case.
Despite the losses, Fed officials have previously indicated that financial results do not influence monetary policy decisions, which remain focused on employment and inflation.
