Powell forced to start printing more money after Fed lost $77.6B last year and $192B in 2 years

The Federal Reserve just posted another massive loss. This time, it’s $77.6 billion for 2024. That brings the total damage under Powell to $192 billion in just two years.

The central bank released its audited financials on Friday. It’s the second straight year of red ink, following a $114.3 billion loss in 2023. This isn’t some accounting trick. The Fed is actually burning through cash.

The losses don’t stop it from functioning or require any help from the Treasury. But this is the same Fed that used to send billions in profits back to the government. Now, it’s got a pile of IOUs it owes itself.

Fed took on too much debt and now pays more than it earns

Powell’s mess started back in 2020 and 2021. That’s when the Fed went all in on pandemic stimulus, loading up on Treasury bonds and mortgage-backed securities. It worked for a while—rates were low, and the Fed made money on those assets. But then came the inflation spike.

To fight that inflation in 2022 and 2023, the Fed jacked up interest rates fast. That move crushed its balance sheet. The problem? The Fed earns income from its bond portfolio, but it also pays interest on bank reserves.

By September 2022, those interest payments were higher than the income from bonds. And the bleeding hasn’t stopped. Until 2022, the Fed was a profit machine. It sent $109 billion to the Treasury in 2021 alone.

Between 2012 and 2021, it sent more than $870 billion. Now, it’s losing money because it has to pay banks more interest than it’s making on its own portfolio. That’s the “monetary plumbing” Powell is stuck with.

And it’s not just some cash drain. The Fed is also on the hook to fund the Consumer Financial Protection Bureau (CFPB), thanks to the 2010 Dodd-Frank law. So even while it’s losing billions, it’s still covering other agencies.

Powell adds $216B IOU to Fed’s books while inflation stays hot

Here’s how Powell is keeping the lights on: instead of asking Congress for help, the Fed started cooking up a thing called a “deferred asset”. It’s basically an IOU the Fed writes to itself.

It started doing this in late 2022 when losses kicked in. The deferred asset hit $16.6 billion by the end of that year. Then it ballooned to $133 billion in 2023. Now it’s sitting at $216 billion.

The Fed says it’ll pay itself back eventually. But that depends on when it starts making money again. That won’t happen until interest rates fall below what it earns on its $6.8 trillion portfolio.

And that portfolio has been shrinking for the past three years. Right now, the average yield is 2.6%. But the Fed is paying 4.4% on $3.4 trillion in reserves. That math doesn’t work.

The New York Fed said in 2023 that the Fed would keep losing money if short-term rates stayed above 4%. The current rate is around 4.3%, down from 5.3% last September. It’s close—but still underwater.

According to Seth Carpenter, chief global economist at Morgan Stanley and a former Fed staffer, “They are getting closer and closer to break-even… but it could take a couple of years.”

None of this is a surprise. The Fed has known this was coming. Internal meeting transcripts show that officials were already worried years ago about the political fallout if losses started showing up after rate hikes. Now that’s exactly what happened.

Fed keeps rates steady while Trump tariffs threaten inflation

While Powell juggles losses, inflation is still a problem. The core personal consumption expenditures price index, the Fed’s go-to inflation metric, likely rose 0.3% in February for the second month in a row. The annual rate is now expected to hit 2.7%, according to Bloomberg.

Consumer spending is back up too. The government report due Friday is expected to show spending climbed 0.5%, while personal income rose 0.4%. That income bump follows the biggest monthly gain in a year. The economy is heating up again—but that’s not always good news for inflation.

All of this comes just before Trump’s planned April 2 announcement of new tariffs. He’s calling it “Liberation Day in America.” Fed officials are waiting to see how that plays out.

That’s why they didn’t raise or cut rates at their latest meeting. Powell said they need more time to see what the tariffs will do to inflation and growth.

Other Fed officials are now stepping in to speak. Adriana Kugler, Alberto Musalem, and Raphael Bostic are all lined up this week. Bostic is set to appear on Bloomberg TV on Monday.

The focus? How to deal with inflation while Powell holds the line on rates and manages a multi-billion-dollar shortfall. More data is on the way too.

February durable goods orders might show if businesses are holding back on spending. And trade numbers will help shape first-quarter GDP forecasts. Imports will probably be skewed again by a wave of incoming gold that doesn’t count in GDP.

Consumer sentiment is also due Friday from the University of Michigan. That report will include short-term and long-term inflation expectations. Basically, everyone’s watching prices—and the Fed’s broke.

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