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Deferred Assets · Federal Reserve · Interest Rates · Operating Losses
The Federal Reserve reported operating losses for the third consecutive year, with cumulative losses exceeding $200 billion, including an $18.7 billion loss in 2025, primarily due to high interest rates increasing payments on commercial bank reserves.
The central bank's profit and loss logic dictates that when interest paid on commercial bank reserves surpasses income from its holdings of U.S. Treasuries and mortgage-backed securities, operating losses occur. Since 2022, the Federal Reserve has aggressively raised interest rates to combat inflation, causing the interest paid to banks on approximately $3 trillion in reserves (at 3.65%) to consistently exceed its bond investment income.
These losses have expanded the Fed's "deferred assets" to $243.5 billion in 2025, an internal accounting mechanism representing past losses to be offset by future profits. The Federal Reserve's daily operations remain unaffected, as it does not require congressional appropriations or Treasury injections.
The New York Fed forecasts a return to profitability this year, with the deferred asset balance expected to be cleared before 2030. Once profitable, future earnings will first repay these deferred assets before resuming remittances to the U.S. Treasury, a practice that previously saw over $870 billion remitted between 2012 and 2021.
Eurozone government bond yields fell, tracking Treasury yields, as focus increasingly centers on the growth impact of the Middle East war.
