Federal Reserve Fed Federal Reserve System, Fed

Main article: US economy

Performance indicators

2024

In October 2024, the markets expect the end of quantitative tightening (QT) by the Fed and the return to money printing (QE) and resume purchases of US government bonds, because there are almost no buyers left to continue building up the US public debt.

2023

Record loss - $114.3 billion

At the end of 2023, the US Federal Reserve System (FRS) recorded a net loss of $114.3 billion, which was a record indicator of cash losses for the agency. Such data were published in mid-January 2024.

In 2022, the Fed's net profit was measured at $58.8 billion. As Alex Pollock, former deputy director of financial research at the US Treasury, noted, the regulator faced losses of this scale for the first time in more than 100 years, and in 2024 they will continue to grow. The expert stressed that such losses significantly harm the country's economy, since due to the deteriorating position of the Fed, the Ministry of Finance loses its ability to place loans, and American taxpayers will have to pay for it.

The record losses of the Federal Reserve were the result of supporting the economy during the COVID-19 coronavirus pandemic and combating inflation by raising interest rates. These losses do not directly affect the work of the Fed, since the department will not ask for funding from the Treasury. However, since the Fed does not transfer revenues to the Treasury, it reduces the sources of income for the American budget and increases its deficit,

The Fed in recent years has engaged in one of the classic financial adventures of about $5 trillion: short-term loans and long-term loans. Now interest rates have gone against these plans and the risk has turned into real losses, "explained Alex Pollock.

Interest income of the Federal Reserve Bank for securities acquired as part of operations on the open market in 2023 amounted to $163.8 billion, which is $6.2 billion less than a year earlier. Total interest expenses jumped by $178.7 billion - to $281.1 billion.^[1]

$1 trillion balance sheet reduction

The Fed withdrew more than $1 trillion from the financial system for the entire period of the asset reduction program, which started in June 2022.

Assets on the Fed balance sheet at their peak in April 2022 were $9015 billion, and as of October 18, 2023 decreased to $7983 billion, i.e. the total decline of $1032 billion to the level last observed at the end of May 2021.

Before they began to beat all the trunks in March 2020, the Fed's balance sheet was $4.2 trillion, and the total net issue for two years of monetary madness amounted to $4.8 trillion. Accordingly, the current scale of the reduction is only 20% of the liquidity injection 2020-2022.

From the beginning of June 2022 to October 18, 2023, the reduction in securities amounted to $1,084 billion with a plan of $1.45 trillion, where treasury sales are on schedule - $856 billion with a plan of $917 billion (over 93% of execution), and MBS was reduced by $228 billion with a plan of $535 billion (43% of execution).

From June 14 to August 30, 2023, the asset reduction plan was in line with the schedule, but since September the gap has been gradually increasing - they are cutting half the amount due to sharp degradation of conditions in the debt market (the strongest wave of sales along the entire treasury yield curve and MBS).

2022

Increase in balance sheet after emergency financing of banks by $300 billion

For several days in mid-March 2023, US banks used a record amount of emergency liquidity. That goes against the Fed's attempts to contain inflation through balance sheet cuts and rate hikes.

Over $300 billion per week was issued to banks under various credit programs through the Fed. This reverses a significant part of the balance sheet contraction carried out since the summer of 2022.

Operating loss for the first time in years

As it became known in October 2022, against the background of rising interest rates and falling demand for US bonds, the US Federal Reserve recorded an operating loss for the first time in many years.

Fed balance sheet hits new record of $8.965 trillion or 36% of GDP

In mid-April 2022, the Fed's balance sheet reached another record level - $8.965 trillion.

In the second week of April, U.S. inflation rose to 8.5%, its highest level since 1981.

2021: Rebalancing to $8.1 trillion

By June 2021, the Fed's balance sheet rose to $8.1 trillion.

Since the beginning of the pandemic by mid-2021, central banks in the United States, Europe and Japan have spent $9 trillion, which has turned them into the largest whales in the market with total assets of $24 trillion.

This is equivalent to the total market value of the dozens of largest and most famous companies in the world.

Most of these funds turned out to be in the form of bank deposits, providing creditors with liquidity. Pumping that money through the economy will be key to sustaining the recovery as central banks cut stimulus.

2020: The balance sheet exceeded $5 trillion, $6 trillion for the first time in history, and then $7 trillion

At the end of March 2020, against the backdrop of the COVID-19 coronavirus epidemic, the Fed's balance sheet exceeded $5 trillion for the first time in history.

The Fed allocated $2 trillion to support the country's economy in connection with the epidemic.

Later, aggregate assets rose another $284.7 billion to 29.1% of U.S. GDP, a new record.

Since the Fed announced its ejection on March 15, it has printed and handed $ 2,055,9 billion to Wall Street.

By May 23, 2020, the total balance of the US Federal Reserve has almost doubled since the end of 2019 and reached $7 trillion.

2019

In January 2020, the Fed published the Z1 report on equity and domestic non-financial debt. 

The net worth of households and non-profit organizations increased to $113.8 trillion in Q3 2019. The value of shares of companies in direct and indirect ownership decreased by $0.3 trillion, and the value of real estate increased by $0.2 trillion

The diagram paints a pink picture. Commitments are low. But what the chart doesn't say is who has assets and who has liabilities. Assets are concentrated in the hands of the top 10%. Commitments are concentrated in the lower 90% of the population.

The graph indicates a point called the Nixon Shock. This is a series of economic reforms implemented by US President Richard Nixon in 1971. The most significant of them was the US unilateral refusal  to tie the dollar to gold, without the consent of members of the Bretton Woods system, which led to the actual shutdown of its work.

Since then, the Fed's balance sheet has grown rapidly, inflating asset prices.

2011: Earnings of $77.4 billion

In 2011, the US Federal Reserve made an exceptionally large profit for the second year in a row. According to CNN Money, the American analogue of the Central Bank earned $77.4 billion. That's twice Apple's revenue and more than the amount earned by the five largest U.S. banks combined by the U.S. ^[2] as ^[2].

Compared to 2010 revenue ($81.7 billion), there was a slight decrease, but profit still significantly exceeds the pre-crisis level. In the 90s-2000s, the Federal Reserve never earned more than $40 billion.

Most of the Fed's profits were derived from securities that the US Central Bank has purchased since 2008. Thus, the Fed provided the economy with liquidity within the framework of two stages of the "quantitative easing" program. As a result, the Fed's balance sheet swelled to $2.9 trillion, although before the crisis it was only $800 billion.

Most of the profits - $75.7 billion - will be sent to the accounts of the US Treasury Department. The rest will go to the needs of the Fed itself.

The Bank of Russia has not yet published its financial results for 2011. In 2010, the Central Bank of the Russian Federation earned 204.3 billion rubles, or $6.7 billion.

Dollar

• US dollar
• Digital dollar

Refinancing rate

2024: Forced rate cut to 4.75% due to huge public debt payments

In December 2024, the US Federal Reserve cut the key rate by 25 bp to 4.25-4.5%.

In November 2024, the US Federal Reserve cut the rate by 25 bp. - to 4.5-4.75% per annum.

One of the unrecognized reasons for the US Federal Reserve rate cuts is the desire to reduce the cost of servicing the public debt and ease pressure on the US budget deficit. Over the next 3 years, approximately $15.1 trillion will go out. U.S. Treasury securities, or 54% of their total.

The weighted average cost of servicing debt in the United States is now 3.36% with a yield of 3-month Treasury bills of 4.53% - it is extremely unstable to service debt of this size at such rates with a record deficit (and this is in the absence of a recession).

At this time, 60% of US budget revenues come from personal and corporate taxes, but based on the history of the last 5 recessions in the United States, the amount of taxes falls by an average of 13% (or 2.1% of GDP), which creates additional pressure on the budget deficit that needs to be financed.

That is why the slide into a US recession at this time can be especially painful, justifying by all means the increase in federal budget spending to maintain GDP (65% of the increase in employment over the past year has ensured the growth of employees in the public sector and healthcare).

All this forces the US Federal Reserve to cut the rate and smoothly curtail the quantitative tightening program, setting the stage for the inclusion of the printing press and the purchase of US public debt, which is positive for speculative and risky assets.

However, such measures do not solve long-term problems and risk again leading to a surge in inflation, but it will someday "later."

Rapid rate cuts diminish the Fed's ability for further maneuvers, especially in the event of a recession. This reduces the "safety margin" and creates long-term risks to the stability of the economy.

Earlier in September 2024, the Fed cut its interest rate by 50 basis points to 5% for the first time in 4 years.

2023: Rate rises to 5.5% - a 22-year high

On July 26, 2023, the US Federal Reserve raised the base interest rate by 25 bp. - to 5.25-5.5% per annum - the maximum in 22 years.

Earlier on May 3, 2023, the US Federal Reserve raised the rate by 0.25%, to 5% -5.25%. Since the beginning of 2023, the rate increase has amounted to 75 bp.

Earlier on March 22, 2023, the Fed raised the rate by 0.25 pp to 5% - the highest level since December 2007 and the fastest rate increase in 42 years.

On February 1, 2023, the US Federal Reserve raised its key rate by 25 basis points to 4.5-4.75% per annum.

2022: Rate rises to 4.5%

On November 14, 2022, the US Federal Reserve raised the rate by 50 bp, to 4.25-4.50%.

Earlier on November 1, 2022, the US Federal Reserve raised the interest rate by 75 bp, to 3.75-4%, the highest level since 2008. This is the fourth consecutive rate increase with such a step.

Fed officials have signaled that their aggressive campaign to contain inflation may be nearing its final phase.

Earlier on September 21, 2022, the US Federal Reserve raised the interest rate by 0.75% for the third time in a row, to 3.25%.

The decision, passed unanimously, increases the target range of the federal funds base rate to 3% -3.25% - the highest level since the start of the 2008 financial crisis.

Fed officials predict it will reach 4.6% in 2023, thereby stepping up the fight to contain inflation, which remains at its highest level since the 1980s.

The Central Bank also confirmed that it "expects that a further increase in the target range will be appropriate," and "firmly intends to return inflation to the target level of 2%."

On July 27, 2022, the US Federal Reserve raised the interest rate by 75 bp to 2.5% (forecast 2.5%, the previous value of 1.75%).

A further increase in the target rate range would be appropriate.

The Fed is very concerned about inflation threats. The Federal Open Market Committee "is determined to return inflation to its 2% target.

In June 2022, the Fed tightens anti-inflationary policies, raising the rate by 0.75 points to 1.75%.

This is a bigger increase than expected just a month ago and comes as inflation returned to a 40-year high of 8.6% in May. "We are committed to getting inflation back to its 2% target," Fed Chairman Jerome Powell told a news conference.

The last time rates were raised by three-quarters of a point at one time was in November 1994. Inflation was about 3 percent, and then Fed Chairman Alan Greenspan raised the federal funds rate to 5.5 percent, fearing the economy would overheat. In his memoir, Greenspan says he is particularly proud to have managed to achieve a mild stabilization of the economy by avoiding a recession.

This rate increase was the third in 2022, after 0.25 points in March and 0.5 points in May.

"Inflation remains high, reflecting the imbalance in supply and demand associated with the Covid-19 pandemic, rising energy prices and general price pressure," the Fed admits in a statement that also mentions the conflict in Ukraine. The central bank is looking for a path that will allow it to contain inflation without causing a recession. "We don't want to provoke a recession now, let's be clear about that," Powell said, though he acknowledged that unemployment would rise by half a point.

But some economists see the opposite as more likely: stagflation, in other words, that tightening monetary policy will put the brakes on the economy but fail to contain price increases. Powell acknowledged that there are factors beyond his control, such as energy and food prices or supply chain bottlenecks. Monetary policy may not be enough to reduce inflation while maintaining an active labor market.

Rising rates make loans more expensive, cool the housing market and business investment, reduce consumption and slow the economy.

For the US president, inflation has become a drama. Rising prices undermined his popularity, and Joe Biden could not find a way to stop it. He is trying to highlight positive economic news, blame Russian President Vladimir Putin and the conflict in Ukraine, say that Republicans have no plan to combat inflation, and explain that the Federal Reserve bears the main responsibility. But they no longer believe him.

The president is even considering removing some trade tariffs on China to lower prices for imported goods, but the effect will be negligible.

Democrats fear a fiasco in the Nov. 8, 2022 congressional election that will see 34 of the 100 senators and 435 House members updated. Biden could lose control of both chambers, as Bill Clinton did in 1994 - the last year that interest rates were raised in one swoop by 0.75 percentage points.

2019

History

2024: Hackers hack into US Federal Reserve, take out 33 TB of data and demand ransom

At the end of June 2024, it became known that cybercriminals hacked the US Federal Reserve System (FRS). Behind the attack is the LockBit ransomware group, which claims to have stolen approximately 33 TB of sensitive data. For non-disclosure of this information, the attackers demand a ransom.

Hackers claim that they have at their disposal a large array of classified information, including "bank secrets of Americans." The Fed serves as the central bank and exercises centralized control over the commercial banking system. USA The Fed includes 12 federal reserve banks located in the largest cities in the country: these,, Boston New York Philadelphia, Richmond, Atlanta, Dallas, St. Louis, Cleveland,, Chicago Minneapolis, Kansas City and. San Francisco Therefore, as noted, the cyber incident "can cause extremely serious damage."

Hackers hacked into the US Federal Reserve

A cyber attack of this scale could leave citizens vulnerable to identity theft, including their social security numbers, bank accounts and other personal information, the DailyMail said.

LockBit says a person who negotiated on behalf of the Fed has offered a $50,000 buyout. Cybercriminals refused this amount, considering it extremely insignificant, given the scale of the leak and the value of the stolen data.

33 terabytes of confidential information containing American bank secrets. You better hire another negotiator within 48 hours and fire this clinical idiot who values ​ ​ the bank secrecy of US citizens at 50 thousand dollars, says LockBit.

However, some security experts question LockBit's claims. So, analyst and researcher Dominic Alvieri says that "there is no evidence" that the group hacked into the Federal Reserve.^[3]

2023

Russian pranksters phoned Fed chief Jerome Powell

US Fed Chairman Jerome Powell in April 2023 held a telephone conversation with a couple of Russian prankers posing as President Ukraine Volodymyr Zelensky.

Seemingly thinking he's talking to Zelensky, Powell answers questions on topics ranging from the prospects for inflation to the Russian central bank. It is unclear whether the personnel was edited.

Powell complained that before his eyes, "the entire world order that has existed for so many years" is being violated, the US economy is on the verge of recession, inflation is off scale, and sanctions against Russia have failed due to the "capable" Elvira Nabiullina, who is "very knowledgeable and smart."

Fed head Jerome Powell predicted Ukraine's complete dependence on the United States, but refused Zelensky's request to give Ukraine a printing press.

Resumption of swap lines with other Central Bank to combat the banking crisis

In March 2013, the banking crisis is growing. The Fed, in coordination with other Central Banks (ECB, Bank of England, Bank of Japan, SNB, and Central Bank of Canada) on the night of Monday March 20, 2023 announced an expansion of liquidity provision through the swap line in an attempt to avoid a liquidity crisis and a shortage of dollars in the system.

Most external debts remain denominated in dollars, so any tension in the financial markets leads to an increase in demand for the main funding currency on the trajectory of closing obligations or the formation of reserves - primarily the dollar, then the euro, pound, yen and Swiss franc.

A swap line is a currency exchange between central banks. For example, the ECB transfers the euro to the Fed, and the Fed transfers dollars to the ECB at a fixed rate with the formation of a swap difference in accordance with interest rates in dollars and euros.

The FIMA Repo Facility allows central banks and other international monetary bodies with accounts with the New York Fed to enter into repo agreements with the Fed. In these transactions, FIMA account holders temporarily exchange their U.S. Treasury bonds held in the Federal Reserve for dollars, which can then be made available to institutions in their jurisdictions.

Throughout modern history, this program has operated three times.

At the time of the acute phase of the 2008-2009 crisis, when the accumulated and outstanding volume of the swap line with all Central Banks amounted to 583 billion in mid-December 2008, and by the beginning of February 2010 the program was completely reset.

The second episode was at the height of the European banking crisis between December 2011 and January 2013, where the peak was in February 2012 (108 billion) and a rapid decline.

The third episode of swap lines occurred at the height of COVID-19 from March 25, the peak was formed in early June 2020 (445 billion) and again a rapid reduction with almost complete zeroing by November 2020.

This time the program started working on March 20, it will be valid at least until the end of April with daily auctions.

As a result, already at the end of March 22, the Fed funds providing foreign Central Bank access to dollar financing were used for a record amount of $60 billion. Someone, somewhere, needed dollar funding.

A full set of the banking crisis is available, Spydell Finance wrote: Bank bankruptcies, expanding spreads in money and credit markets, rising risk/default insurance, volatility, uncertainty, record lending to banks by the Fed, swap lines and revaluation of expectations.

Resumption of the emergency lending program for banks after the bankruptcy of two of them

On March 12, 2023, the Fed officially announced that two days after the collapse of SVB (assets of 200 billion), another Signature Bank bank collapsed with assets of $110 billion.

The Fed urgently resumed credit lines to banks. Additional funding will be provided through the creation of a new Bank Financing Program - Bank Term Funding Program (BTFP), offering loans for up to one year to banks, savings associations, credit unions and other eligible depository institutions. Read more here.

2022

Ban on Fed officials from trading stocks, bonds and cryptocurrencies

On February 18, 2022, the US Federal Reserve approved rules prohibiting its officials from trading in stocks, bonds, and cryptocurrencies.

In addition to the rules announced in October, the Federal Open Market Committee announced that most restrictions would take effect on May 1.

The rules will apply to FOMC members, regional bank presidents and a range of other officials, including full-time employees, bond managers and Fed employees who regularly attend board meetings. They also apply to spouses and minor children.

Another functionary leaves the Fed due to insider trading

 In January 2022, the Fed passed the third high-profile resignation in a few months - Richard Clarida left before the expiration of his powers. He is one of the most scandalous officials to have caused a "deficit of confidence" in the Fed. Clarida hid the transfer of his several million    dollars from the bond fund to the stock fund days before the Fed's  decision on emergency measures to support the financial market. The official said he hid information about the transactions due to an error.

Clarida is not the first senior Fed official to be forced out over questionable trade. In September 2021, Eric Rosengren and Robert Kaplan, who headed two regional branches of the bank, also resigned due to their investments.

 In October, the head of the Fed Jerome Powell announced new investment rules for high-ranking employees, introduced bans on transactions at certain periods.

2021: Fed payment system goes down for hours

At the end of February 2021, the electronic bank transfer service of the Federal Reserve System (Fed) USA failed for several hours. The regulator's website states that the failure was caused by an "operating error."

The Fed said the problems began on Feb. 24 at about 11 a.m. ET. For about three hours, almost all electronic services of the Central Bank did not work. Gradually, Fed employees began to restore services, but many of them continued to be unavailable, including the Fedwire Funds system.

Among the affected services were an electronic bank transfer system and an information exchange center that connects depository and related institutions to pay off debts and loans. Failures occurred in the system of transferring funds and financial assets between banks, enterprises and government agencies. In addition, systems that process payroll, social security benefits, tax refunds, and corporate payments were affected.

The Fed restored services within hours, but warned that the error would "affect the timing of payment." In addition, it is known that employees of the Federal Reserve Bank are investigating the disruption of services to prevent such failures in the future. The regulator has not yet assessed the damage that could have been caused to the country's financial infrastructure, but we are talking about tens of millions of transactions that the Central Bank's systems process daily.

By the end of February 2021, the Fed includes 12 federal reserve banks and more than two thousand more commercial banks. The key role in managing the Federal Reserve is played by the state.^[4]

2020: US Fed: "We can print the digital dollar"

According to the head of the American Federal Reserve System (Fed) Jerome Powell , the United States can print money "in numbers." Read more here.

2016: Embezzlement of $81 million from the account of the Central Bank of Bangladesh

In March 2016, it became known about the hacking of the IT system of the Federal Reserve Bank of New York (FRB; it is part of the Federal Reserve System), as a result of which criminals were able to steal about $100 million belonging to the Central Bank (CB) of Bangladesh. The latter spoke about the theft, according to The New York Post.^[5]

The Bangladeshi Central Bank said that unknown hackers gained access to the account, after which they ordered the withdrawal of funds, some of which was later found in the accounts of three Philippine casinos.

The leadership of the Federal Reserve Bank of New York denied information about the hack. According to Andrea Priest, spokeswoman for the bank, there is no evidence of hacking into the internal systems of the US Federal Reserve and the implementation of unauthenticated transactions related to the account of the Bangladesh government.

The New York Fed noted that the order to transfer funds was confirmed by the SWIFT system in accordance with standard protocols. SWIFT stressed that they did not find any signs of vulnerability in their system.

By the beginning of March 2016, the total amount of Bangladesh's international reserves was approximately $28 billion. The Federal Reserve Bank of New York at that time kept the funds of about 250 foreign central banks, governments and other government agencies.

As the Reuters agency clarifies with reference to the official representatives of the Bangladeshi Central Bank, the system of this institution, and not the FRB, was hacked, after which the hackers sent about 30 requests to the Federal Reserve Bank to transfer money to the accounts of various organizations in the Philippines and Sri Lanka. Four of them were successful: fraudsters managed to get $81 million, which became one of the largest known bank scams, the newspaper notes.

At the same time, the amount of damage could be many times more. The fact is that hackers, trying to send another tranche to the account of the non-profit organization Shalika Foundation, made a spelling error in its name - instead of the word "foundation" (English foundation), fandation was written. As a result of this, the bank through which the payment passed demanded clarification from the Central Bank of Bangladesh, and the regulator was able to block the deal.^[6]

It is noted that the total volume of transactions that hackers tried to conduct is $850-870 million.

In March 2016, it became known that the head of the Central Bank of Bangladesh, Atiur Rahman, resigned after a cyber attack on a financial institution. According to updated data, in February 2016, criminals hacked into the Central Bank's electronic system and stole $81 million from its accounts, Reuters reported.

According to the leadership of the Bangladeshi Central Bank, the money transferred to Sri Lanka was returned, and negotiations are underway with the Philippine authorities to return the bulk of the stolen funds. For further developments, see the article "Central Bank of Bangladesh."

Notes