The Federal Reserve’s aggressive plans to raise interest rates to combat high inflation could have an unpleasant and easily overlooked side effect for the central bank: capital loss.
The possibility of loss depends on the opaque monetary pipeline system. The Fed’s $9 trillion portfolio, sometimes called the balance sheet, is filled with mostly interest-bearing assets – Treasuries and mortgage-backed securities – with returns The average yield is 2.3%. On the other side of the ledger – the pay-out side of the Fed’s balance sheet – are bank deposits held at the Fed called reserves, also interest, as well as currency in circulation.
https://www.wsj.com/articles/higher-rates-raise-risk-of-future-fed-losses-11653222600?mod=pls_whats_news_us_business_f Higher Rates Raise Risk of Future Fed Losses