The Fed’s Hidden Comeback: How America’s Central Bank Is Quietly Climbing Out of Its Deepest Losses Ever

For years, the world watched the Federal Reserve battle inflation by making borrowing more expensive. What went mostly unnoticed, however, was the price the Fed itself paid for that fight. While households and businesses faced higher loan costs, the central bank was quietly drowning in red ink. Now, for the first time in a long while, there are signs the tide may finally be turning.

The Federal Reserve — often described as the most influential central bank on the planet — has spent the past few years reporting losses rather than profits. After a record $114.3 billion loss in 2023, followed by $77.6 billion in 2024, the bank has already booked $20.8 billion in losses this year through the end of September. This marks a sharp departure from its long-standing trend of almost always ending the year with a profit, a pattern that held until 2022.

The reason is buried in the mechanics of monetary policy. When the Fed ramped up interest rates to curb inflation, it also increased the rates it pays on money parked at the central bank by financial institutions. In 2023, that payout climbed above 5%, at one point reaching 5.4% on bank reserves. These interest expenses ballooned past what the Fed earned from its own investment portfolio — a portfolio built largely when long-term yields were below 1% during the pandemic-era stimulus push.

Unlike ordinary companies, the losses don’t threaten the Fed’s operations. The central bank simply creates the money it needs and records the shortfall as a “deferred asset,” an accounting entry that functions more like an IOU to itself. That deferred-asset figure is deeply negative — roughly $243 billion, up from about $20 billion two years ago.

Still, the situation comes with complications. Critics, including those in the political arena, often misinterpret these losses as signs of mismanagement. Economists warn that this misunderstanding can fuel pressure on the Fed’s independence at a time when political scrutiny is already intensifying.

There’s also a practical issue: Since 1947, the Fed has been required to send its excess earnings to the U.S. Treasury. From 2011 to 2021 alone, those payments totaled more than $920 billion, essentially acting as a revenue booster for the government. But when the Fed’s income turned negative, those transfers dried up. The bank must fully erase its deferred-asset balance before it can resume sending money back to Washington.

This is why a turnaround matters — not just for the central bank’s reputation, but for the nation’s finances. Even modest Fed profits could ease the Treasury’s near-term funding pressure and potentially reduce the need for additional government borrowing.

And momentum may finally be shifting. According to Fed officials, net income is expected to turn positive again as interest expenses gradually decline. The year-to-date loss through September is already running at about one-third of the pace seen the year before.

There’s also an unexpected bright spot: several regional Federal Reserve Banks have begun operating in the green. The Atlanta Fed has been consistently sending money to the Treasury since early 2024. St. Louis has made intermittent payments, and cumulative losses have stopped growing at the New York, Cleveland and Philadelphia banks. At the Dallas Fed, the turnaround has been striking — cumulative losses dropped from $1.4 billion at the beginning of the year to under $200 million by late November.

Some economists now believe the central bank could finish the year with a modest profit — potentially around $1.9 billion — and generate even stronger numbers early next year. Further reductions in interest rates, something some policymakers now support, would help accelerate the recovery of the central bank’s books.

Whether lower rates reignite inflation is its own debate. But for now, one thing is clear: after two years of historic losses, the Federal Reserve is inching back toward financial stability. And that quiet comeback could eventually ripple far beyond the walls of the central bank — all the way to the Treasury, the bond market, and the broader U.S. economy.