Higher Rates Raise Risk of Future Fed Losses

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

Edmund DeMarche

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