US Federal Reserve Losses: An Income Statement Perspective

Abstract Since September 2022, the US Federal Reserve, the central bank of the United States, has been incurring realised losses. Generally speaking, analyses take a balance sheet perspective which assesses losses as the difference between assets, liabilities and respective returns. This note develops an income statement perspective which points to operational costs, transactions with financial institutions and transactions with the US Department of the Treasury (US Treasury), shedding light on central banking as a public-private partnership which operates as Treasury issue bank, banks’ bank, and foreign exchange agency. Accordingly, Fed loss-making operations result from the large remunerated reserves regime put in place to respond to the North-Atlantic Financial Crisis of 2007–8, involving implicit coordination between the Fed and the US Treasury for fiscal and monetary policies joint implementation, while implying material transfers from the Treasury to financial institutions that add to incurred costs for unconventional monetary policies.