U.S. Federal Reserve Reveals $100 Billion Loss in 2023
The U.S. Federal Reserve announced on September 14 that it has incurred losses of $100 billion in 2023. This situation, according to Reuters, is expected to worsen for the Fed. However, this financial setback may actually be a blessing in disguise for risk assets like Bitcoin (BTC).
The primary reason behind the Fed’s accumulated losses is the interest payments on its debt, which have surpassed its earnings and the services it provides to the financial sector. This has led investors to scramble to understand how this will impact interest rates and the demand for assets like BTC.
Some analysts believe that the Fed’s losses, which began a year ago, could potentially double by 2024. The central bank classifies these negative results as “deferred assets,” arguing that there is no immediate need to cover them.
Historically, the Federal Reserve has been a profitable institution. However, the absence of profits does not hinder the central bank’s ability to conduct monetary policy and achieve its objectives.
The Fed’s losses are not surprising, given the substantial interest rate hikes that have occurred in recent years. Even if interest rates remain unchanged, the Fed’s losses are likely to persist for some time due to the expansionary measures implemented during the pandemic.
The impact of the $100 billion loss on the Fed’s profitability is illustrated in an article in Barron’s, which states, “The Fed banks’ losses don’t increase federal budget deficits. But the now-vanished big profits that they used to send the Treasury did help hold down the deficit.”
This situation is unsustainable, particularly considering the U.S. debt, which has reached $33 trillion. While the Fed’s measures to raise interest rates initially may be criticized, without such actions, inflation would not have returned to a manageable level.
Investors are now faced with the risk of inflation and dilution due to the injection of liquidity into the market. This raises questions about which sectors or asset classes will benefit when inflation catches up with short-term Treasury yields.
The S&P 500 index and the real estate market are experiencing uncertainties. While the S&P 500 is not excessively valued, there are concerns that the Fed may need to further raise interest rates to combat inflationary pressures.
Amidst these uncertainties, Bitcoin and other cryptocurrencies could emerge as viable hedge options. The U.S. government’s debt ceiling is essentially boundless, making these assets attractive for long-term investment.
It is important to note that this article is for general information purposes and should not be taken as legal or investment advice. The views expressed here are the author’s alone and do not necessarily reflect the views of Cointelegraph.
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About the author - J-S Tremblay
I've been involved in the cryptocurrency world since 2016 and trading since 2019. I started Moon and Lambo in 2021. I'm passionate about crypto and love to share my knowledge. I hate bankers and I hope that cryptocurrency will change the financial world for the better. View full profile...
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