By Michael S. Derby
April 13 (Reuters) – The Federal Reserve Bank of New York said on Monday that the U.S. central bank had a smaller unrealized loss on its expansive bond holdings last year relative to 2024.
The paper loss on 2025 holdings stood at $844.2 billion after the 2024 https://www.reuters.com/business/ny-fed-flags-106-trillion-unrealized-loss-bond-holdings-2024-2025-06-03/ unrealized loss of $1.06 trillion. The tally for the unrealized loss was made public as part of the release of the annual report https://www.newyorkfed.org/medialibrary/media/markets/omo/omo2025-pdf.pdf for the central bank’s System Open Market Account, its massive stockpile of cash and bonds and other assets.
The unrealized loss on Fed bond holdings is primarily an accounting artifact and in the view of the Fed and many other observers, these paper losses have no implications for central bank operations, as the institution has no plans to sell any of the Treasury and mortgage bonds it owns. As long as the Fed holds a bond to maturity, it sees no loss relative to the purchase price.
In the report, the Fed said “the market value of the SOMA securities portfolio fluctuates with changes in the level of interest rates.” It added, “unrealized gains and losses have no effect on net income or remittances to the Treasury or on the ability of the Federal Reserve to conduct monetary policy.”
That said, some see the paper losses as a black mark on how the Fed has used its balance sheet as a market stabilization and stimulus tool, with the losses offering a theoretical chance of becoming a real issue for the Fed at some point.
The unrealized balance sheet losses come as the Fed, which funds its work from financial services and income earned on bond holdings, also lost money on its operations. It booked $19.6 billion in red ink https://www.reuters.com/business/fed-reports-narrowing-196-billion-loss-operations-2025-2026-03-25/ for last year, down from 2024’s $77.5 billion loss. The Fed says that its operating loss is also a non-issue and as it returns to profitability, which it appears to have done in recent months, it will repay that loss over time.
The financial challenges faced by the Fed are tied to the central bank using large-scale buying of Treasury and mortgage debt as a tool to both stabilize financial markets in times of trouble, and as a tool of stimulus. Purchases of bonds help steady markets and lower overall borrowing costs from where they would otherwise be.
The Fed more than doubled the size of its holdings during the COVID-19 pandemic to a peak of $9 trillion by 2022, after which it began to allow its holdings to contract by allowing set amounts of bonds to mature and not be replaced, helping the Fed shed just over $2 trillion in holdings by the close of last year.
The Fed began to rebuild its holdings starting in December for purely technical reasons, to ensure the financial markets would have enough cash on hand to get smoothly through the April 15 tax date. The Fed has said it plans to moderate its large-scale buying of short-term Treasury bills after the tax date, but it’s unclear when that pullback will occur.
The current overall size of the Fed’s balance sheet stood at $6.6 trillion as of last Wednesday. As of Monday, the current SOMA, a subcomponent of the Fed’s overall holdings, was at $6.3 trillion, with the Fed holding $4.4 trillion in Treasury debt and $2 trillion in agency mortgage-backed securities.
In the SOMA report, the bank said that looking ahead, it is likely to buy between $330 billion and $395 billion in bonds per year to bolster money market liquidity levels to ensure control over the federal funds rate, the central bank’s interest rate target. This technical buying is likely to raise the overall level of Fed bond holdings to $10 trillion by the end of 2035. The bank noted there is “substantial uncertainty” around that path.
The report also said the New York Fed expects the Fed to remain profitable over coming years and that the loss the central bank booked will be paid off and excess profit will again return to the Treasury by “early” 2030.
(Reporting by Michael S. Derby in New York; Editing by Chizu Nomiyama and Matthew Lewis)
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