Fed reports comprehensive 2024 net loss of $77.5 billion

By Michael S. Derby

March 21 (Reuters) - The Federal Reserve said on Friday the loss it faced last year on its operations declined relative to 2023.

The U.S. central bank said the total distribution of its comprehensive net loss last year stood at $77.5 billion versus $114.6 billion in the prior year. The Fed last turned a profit in 2022.

The loss reported by the central bank for 2024 is a final audited number, and with the Fed breaking this year with a multi-year practice of releasing a preliminary number at the start of the year, it is also the public's first look at the official state of central bank finances.

The Fed's loss is primarily driven by its efforts to bring high levels of inflation down. The central bank is self-funding, earning money from the securities it owns and the services it provides to the financial sector. By law, the Fed hands back to the U.S. Treasury any excess earnings, and in recent years, those sums have been quite large.

But the landscape began to change in 2022. Faced with the highest levels of inflation in decades, the Fed aggressively raised the range of its short-term interest rate from near-zero levels that spring to a peak of 5.25%-5.50% by July 2023. It has since lowered rates by a percentage point due to a drop in inflation, with monetary policy currently in a holding pattern.

The Fed pays banks, money market funds and other eligible firms to park cash with it as part of technical operations to manage its interest rate target. Its interest costs have surged and outstripped its earnings, leading to paper losses that central bankers have said repeatedly do not affect their ability to operate and conduct monetary policy.