By Nick Timiraos and Matt Grossman
The Federal Reserve ran an operating loss of $18.7 billion last year, its third straight year of losses.
The losses were disclosed Wednesday when the U.S. central bank published audited 2025 financial statements. The loss was significantly smaller than in the previous two years. The Fed had losses of $114.3 billion in 2023 and $77.6 billion in 2024.
The Fed is self funded. It isn't required to ask for any money from the Treasury Department, and the losses don't affect the Fed's day-to-day operations.
The U.S. central bank makes money from the large portfolio of government-backed bonds that it owns. On the other hand, it has to make interest payments on the deposits that banks keep in their Fed accounts. Operating losses happen when those interest payments exceed its income from its bondholdings.
The losses of the past three years are a side effect of the central bank's aggressive campaign to jack up interest rates starting in 2022 to combat high inflation.
Generating profits and interest income isn't a specific goal of the Fed, but until 2022 the central bank had almost always made annual profits, which were returned to the Treasury after covering its operating expenses.
In the past, Fed officials have expressed unease in private over the potential political blowback should it be forced to raise rates rapidly and incur losses on its securities holdings, according to transcripts of their policy meetings.
President Trump last year seized on a separate issue -- cost overruns on the $2.5 billion renovation of two historic properties the Fed plans to use for its headquarters -- to argue that the central bank has been mismanaged. Trump has been unhappy that the Fed isn't cutting interest rates faster. Those renovations are the basis of a federal criminal investigation against Fed Chair Jerome Powell. A judge recently threw out Justice Department subpoenas in the case.
The Fed's balance sheet includes assets such as Treasury securities and mortgage-backed securities on which the central bank earns money like any other investor would. On the other side of the ledger are liabilities, including deposits that banks maintain at the Fed known as "reserves." It pays interest on those reserves.
Unlike federal agencies, the Fed doesn't have to go to Congress hat in hand to cover operating losses. Instead, the central bank created an IOU in 2022 that it calls a "deferred asset." When the Fed makes money in the coming years, it will pay itself back first and resume its prior practice of sending profits to the Treasury only after the deferred asset has been extinguished.
With 2025's operating loss, the deferred asset grew to $243.5 billion last year, from $216 billion in 2024.
The central bank maintained a small portfolio of bonds and other holdings until the 2008 -- 09 financial crisis. After that, the Fed's net income soared because it sharply increased its asset holdings while changing how it controls interest rates. Between 2012 and 2021, the Fed sent more than $870 billion to the Treasury, including $109 billion in 2021.
The gap between what the Fed earns on its bonds and what it pays on reserves has narrowed sharply over the past year as the Fed has cut rates. It currently pays 3.65% on some $3 trillion in reserves, down from 4.4% on $3.4 trillion a year ago.
Projections last year from the New York Fed showed the Fed could have operating profits this year, and that it could extinguish the deferred asset by the end of the decade.
The Fed also funds the operations of the Consumer Finance Protection Bureau. Congress required it to do so when it created the agency through the 2010 Dodd-Frank financial overhaul law. The Trump administration has argued in a lawsuit that the agency shouldn't be funded given the Fed's lack of profits, but a federal judge rejected that argument in December.
Write to Nick Timiraos at Nick.Timiraos@wsj.com and Matt Grossman at matt.grossman@wsj.com
(END) Dow Jones Newswires
March 25, 2026 12:59 ET (16:59 GMT)
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