JAKARTA – The Federal Reserve (The Fed), the central bank of the United States, has recorded its first back-to-back annual losses since 1915, amounting to a total of USD 192 billion in 2023 and 2024.

“This simply means that over those two years, the Fed’s income was lower than its expenditures,” said a source close to Bank Indonesia, speaking to IDNFinancials.

Data from the Federal Reserve shows that it began posting operating losses in the fourth quarter of 2022 — the first such losses since 1915.

The losses are primarily attributed to rising interest rates implemented to curb inflation, which significantly increased the interest expenses the Fed had to pay.

These interest expenses exceeded the Fed’s income from US Treasury securities (USTs) and mortgage-backed securities (MBS), which are the Fed’s primary sources of revenue.

Meanwhile, its main expenditures include interest payments on reserves and on reverse repurchase agreements.

When a loss occurs, the Fed records it as a deferred asset, meaning the loss must be covered before any future profits from government bond holdings can be distributed.

William English, a former Fed staffer now at Yale University, estimated — as quoted by CNBCIndonesia.com (23/9/2023) — that the Fed’s total losses could reach USD 200 billion by 2025.

It is worth noting that the Fed engaged in large-scale purchases of government and private bonds, as well as other securities, to rescue the economy during the early phase of the COVID-19 pandemic in 2020.

“We used these lending powers to an unprecedented extent and... will continue to use them forcefully, proactively, and aggressively until we are confident that we are solidly on the road to recovery,” said Jerome Powell, Chair of the Federal Reserve Board of Governors, in April 2020.

These purchases caused the Fed’s balance sheet to balloon from around USD 4 trillion before the pandemic to nearly USD 8.9 trillion by March 2022.

The Fed's mass acquisition of long-term bonds during the early pandemic period pushed bond prices up and yields down. In March 2020, the yield on US Treasuries was around 0.7%, while the Fed funds rate stood at 0.00–0.25%.

Problems emerged when inflation surged due to soaring energy and food prices. The Fed responded with aggressive rate hikes — raising rates by 525 basis points between March 2022 and July 2023 to a range of 5.25–5.50%.

The rate hikes also pushed the yield on 10-year US Treasuries to around 4.3% in 2023 and 2024. Consequently, the market value of the Fed’s bond portfolio plummeted, leading to losses.

The Fed’s weakened balance sheet, combined with a US government deficit of USD 30 trillion and inflation risks tied to potential money printing, has left America, in the words of Bridgewater Associates founder Ray Dalio, with no choice but to raise tariffs.

Just days ago, on 9 May 2025, the Fed quietly purchased another USD 20 billion in US government bonds after the Treasury Department’s USD 150 billion bond auction managed to sell only USD 78 billion.

Commenting on America’s financial state, Dalio noted on his X platform (13/5/2025) that the US had once run out of money and defaulted on its obligations in 1971.

“Of course, the government didn’t say it that way. But when it abandoned the gold standard, the meaning of money as we knew it ended,” he wrote.

“I expected the stock market to crash, but instead it rose nearly 25%. That surprised me. But when I dug into it, I found the exact same thing happened in 1933 with the same impact.”

The current US government is visibly intensifying efforts to rein in the deficit, including through spending cuts and tariff hikes.

Most recently, President Trump embarked on a roadshow across oil-rich Middle Eastern nations to “persuade” them to invest in the US. He even reportedly received a used Boeing 747 jumbo jet from the Qatari royal family. (MT/ZH)