The Federal Reserve Faces Losses and Layoffs as Interest Rates Rise

The United States Federal Reserve (Fed) has experienced significant financial losses as a result of the aggressive interest rate hikes implemented since last year. Reports indicate that the Fed’s losses have surpassed $100 billion, as income from its bond portfolio fell short of the interest costs. This has prompted the Fed to lay off around 300 workers, marking the first time layoffs have occurred since 2010.

According to a spokesperson for the Federal Reserve, the upcoming job cuts will primarily impact technology-related positions, particularly those associated with cloud computing software and redundant roles in the Fed’s payment processing systems. While the exact reasons for the layoffs were not disclosed, the spokesperson mentioned that it was a combination of attrition, including retirements and redundancies.

From 2022 to 2023, the number of Federal Reserve system employees is projected to decrease by approximately 500, bringing the total count down to 23,895 from the current 24,428. This reduction will affect various departments, including the regional banks, the Washington Board of Directors, and three smaller divisions.

The recent losses incurred by the Federal Reserve can be attributed to the substantial interest rate hikes carried out since March of last year. Interest payments to banks on Fed reserve deposits exceeded the earnings from the Fed’s bond portfolio, consisting of around $7.5 trillion in bonds and mortgage-backed securities, resulting in the reported losses exceeding $100 billion.

Unlike federal agencies that rely on congressional appropriations, the Federal Reserve generates its own income through its assets and charges banks service fees to cover its annual expenses. Previously, the profits generated by the Fed were transferred to the US Treasury. However, due to increased spending, surpassing revenue every year, the Fed now owes an IOU to the Treasury, payable at a later date.

Notably, these layoffs are not directly linked to the Fed’s financial losses. However, congressional Republicans have closely scrutinized the Fed’s operations, expressing concerns about its focus on matters such as climate change and inequality economics, which they believe exceed its financial policy and banking supervision remit.

The Federal Reserve had experienced a steady decline in employee numbers in the early 2000s, primarily driven by the phasing out of paper checks. Nevertheless, the financial crisis and economic recession between 2007 and 2009 led Congress to assign additional responsibilities to the Fed, leading to an increase in staff numbers until this year.

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The United States Federal Reserve (Fed) has raised interest rates violently since last year, which seems to have reaped the consequences. Since the income from the bonds it has is less than the interest costs, the Fed’s losses have expanded to more than 100 billion US At the same time, the Fed system will around 300 workers be laid off by the end of this year, the first layoff since 2010.
(Previous summary: The Federal Reserve “holds off raising interest rates in September” but hinted it would increase by one yard by the end of the year. Bitcoin fell below 27,000 and then pulled back)
(Background addendum: If the Federal Reserve cuts interest rates, will US stocks soar? Historical lessons tell you the opposite…)

According to Reuters, a spokesperson for the Federal Reserve confirmed that it will lay off around 300 people before the end of this year. The layoffs will target employees of the Federal Reserve’s 12 regional banks and will mainly affect jobs in the technology field information, including some due to the popularity of cloud computing software. , jobs that are no longer needed, and jobs related to the Fed’s payment processing systems, which are being consolidated.

A spokesman would not reveal the reasons directly, but said the reduction was the result of a combination of attrition, including retirements and redundancies. From 2022 to 2023, the number of Federal Reserve system employees under the budget will decrease by about 500 from 24,428 to 23,895, including regional banks, the Washington Board of Directors, and three smaller departments.

Losses reached US$100 billion due to interest rate hike

Since March last year, the Federal Reserve has raised interest rates significantly from 0 ~ 0.25% to 5.25% – 5.5%, and this seems to have caused the Federal Reserve to reap the results released by the Federal Reserve recently showed that its losses had exceeded $100 billion as interest payments to banks on Fed reserve deposits exceeded the Fed’s earnings from its bond portfolio of approximately $7.5 trillion of bonds and securities mortgage backed (MBS).

The Fed’s losses increased to $100 billion. Source: St. Louis Fed

Unlike federal agencies, which spend money appropriated by Congress, the Fed raises its own money, derives income from the assets it holds, and charges banks a range of service fees to cover its annual expenditure of approximately $6.3 billion. The system has nearly 24,000 employees in Washington and other cities across the United States.

In most years in the past, the profits generated by the Federal Reserve were transferred to the US Treasury, but since it raised interest rates to control rising inflation, the Fed’s spending has exceeded revenue every year. to pay an IOU to the US Treasury, payable at a later date.

First layoffs in 13 years

The report mentioned that there is no direct correlation between layoffs and Fed losses, but congressional Republicans have watched the Fed’s operations closely. They are concerned about the Fed’s detailed study of issues such as climate change and the economics of inequality, and believe that these Matters appear to be beyond its financial policy and banking supervision remit

At the beginning of the 21st century, the number of employees in the Federal Reserve system continued to decline, from less than 24,000 in 2003 to 19,735 in 2010. The reason was that the era of paper checks had ended, allowing the Federal Reserve reduce, clean, and deal with The large number of staff needed for these documents.

Later, with the onset of the financial crisis and economic recession between 2007 and 2009, Congress added new responsibilities to the Federal Reserve, promoting the modernization of the Federal Reserve and expanding its role in processing payments, and taking on responsibilities such as maintaining new financial stability. Starting from 2010, the number of employees of the Federal Reserve has increased from year to year until this year.

Changes in the number of feeding staff. Source: Fed

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