Federal Reserve Reports Second Year of Negative Net Income Amid High Interest Rates

The Federal Reserve’s System Open Market Account (SOMA) saw its net income decline for the second year in a row in 2024 and could see another drop in 2025, the New York Federal Reserve said in a report released Tuesday (June 3).

The losses slowed in 2024, with SOMA net income being negative $74.7 billion that year after totaling negative $117.2 billion in 2023, the New York Fed said in its annual report, Open Market Operations During 2024.

The report attributed the change to a “sharp reduction” in overnight reverse repurchase agreement (ON RRP) interest expense that was partially offset by lower interest income from SOMA securities holdings.

“Using survey-based assumptions about the path of interest rates, the projections indicate that total SOMA net income could remain negative in 2025, driven by the cost of interest-bearing Federal Reserve liabilities, before returning to positive levels in subsequent years,” the report said.

SOMA contains dollar-denominated assets acquired through open market operations, which are used for collateral for liabilities on the Federal Reserve System’s balance sheet, a tool for the Fed’s management of reserve balances, and a tool for achieving its macroeconomic objectives, according to the New York Fed’s website.

The New York Fed serves as the Reserve Bank that executes transactions for SOMA.

The Fed had remitted positive income to the Treasury for years but began sustaining operating losses in late 2022 as policymakers raised rates to fight inflation, Bloomberg reported Tuesday.

The higher rates left the central bank paying out more in interest on its liabilities than it earns on its bond holdings, according to the report.

Moving forward, lower short-term rates and higher interest income from higher-yielding securities added to the Fed’s portfolio are expected to turn net income positive in late 2025, per the report.

The Fed’s report came about two weeks after it was reported that the Federal Reserve plans to cut its workforce by about 10% “over the next couple of years” amid a periodic review of its staffing levels.

Federal Reserve Chair Jerome Powell told Fed staff in a memo obtained by PYMNTS that the reduction will “ensure that we are right-sized and able to meet our statutory mission.”

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