Federal Reserve Reports Third Straight Loss as Interest Costs Outpace Earnings

TLDR:

• The Federal Reserve recorded an $18.7 billion loss in 2025, marking its third consecutive year in the red.
• Rising interest payments on reserves and reverse repos continue to exceed income from bond holdings.
• Losses peaked in 2023 and narrowed by 2025, signaling a gradual shift as rate pressures stabilize.
• The Fed has paused Treasury remittances after years of profit, reflecting ongoing balance-sheet strain. 

The U.S. Federal Reserve reported a third straight annual operating loss in 2025, extending a rare financial stretch. The latest figures showed a loss of $18.7 billion, continuing a trend that began in 2023 after a long period of steady profitability.

Fed Losses Extend Into Third Year

Recent data shared in a post by The Kobeissi Letter confirmed the central bank’s ongoing losses. The tweet noted that total losses reached $210.3 billion over three years.

It also pointed out that 2023 recorded the deepest loss, followed by a smaller deficit in 2024 and a narrower gap in 2025.

https://twitter.com/KobeissiLetter/status/2045690597764186307?s=20

The post explained that the losses stem from higher interest payments to banks and money market funds. At the same time, income from bonds and mortgage-backed securities remained lower. This gap between expenses and earnings has kept the Federal Reserve in negative territory since September 2022

Before this period, the central bank had a long record of profits. From 2000 to 2007, earnings remained stable between $20 billion and $35 billion. However, profits surged after the 2008 financial crisis as policy rates dropped and asset purchases increased.

Between 2009 and 2015, profits rose sharply, reaching a peak of around $115 billion. During those years, the Federal Reserve held large amounts of higher-yielding securities while funding costs stayed near zero. As a result, earnings remained elevated for several years.

Rate Hikes Shift Financial Structure

The financial position began to change as interest rates increased. From 2016 to 2022, profits started to decline, although they remained positive. Earnings moved within a range of $55 billion to $105 billion during that period.

Conditions shifted in 2023 when aggressive rate increases raised borrowing costs across the system. The Federal Reserve began paying higher interest on reserves and reverse repurchase agreements. Meanwhile, returns from its existing bond portfolio remained fixed at lower rates.

This shift caused expenses to exceed income, leading to the first annual loss in decades. The deficit reached about $115 billion in 2023, marking the lowest point in the data series. Losses continued in 2024 at roughly $80 billion before easing in 2025.

At the same time, the Federal Reserve stopped sending profits to the U.S. Treasury. This pause ended a long streak of remittances that had totaled over $1.36 trillion since 2008. The change reflects the current financial position rather than a structural limitation.

Despite the losses, the Federal Reserve continues normal operations. The system allows it to manage shortfalls without facing solvency concerns. The central bank records deferred assets instead of halting its functions.

Recent figures show that the scale of losses has started to narrow. The move from deeper deficits toward a smaller loss in 2025 signals a shift in pace. Future results will depend on interest rate trends and changes in funding costs.

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