The Federal Reserve’s massive pile of unrealized losses isn’t shrinking, and with inflation back in the spotlight, investors are questioning whether any rate cuts are necessary at all.
That leaves Fed Chair Jerome Powell in an awkward position: trillions of dollars in low-yield bonds are sitting on the Fed’s books, losing value as interest rates remain high. But now, with a Republican-controlled Congress and a newly aggressive Trump administration, the Fed’s ballooning losses are about to become political ammunition in Washington’s latest battle over government waste.
Sen. Katie Britt Confronts Powell on Fed’s Hidden Losses
During congressional testimony this week, Sen. Katie Britt (R-AL) grilled Powell on the $818 billion in unrealized losses from the Fed’s massive balance sheet of Treasurys and mortgage-backed securities.
Britt also questioned why, despite operating at a record-breaking loss, the Fed continued sending money to the Consumer Financial Protection Bureau (CFPB)—a controversial, Democrat-controlled agency funded directly by the Fed, rather than through congressional appropriations.
With President Trump’s administration now aggressively cutting bloated government agencies, the CFPB has already seen its funding requests denied, and its future remains uncertain. Britt, a longtime critic of the agency, co-authored legislation in 2023 to halt these payments altogether.
Trump’s New Government Efficiency Team Eyes Fed’s Financial Mess
With the Trump administration now focused on cutting waste, the newly created Department of Government Efficiency (DOGE), led by billionaire Elon Musk, is already targeting the Fed’s out-of-control balance sheet.
While Powell insists the Fed remains independent, that won’t stop congressional Republicans from demanding answers about how the central bank mismanaged its finances, or why it kept fueling inflation by printing trillions after the pandemic.
Fed’s Unrealized Losses Could Become a Political Crisis
The Federal Reserve isn’t at risk of insolvency, but its ongoing paper losses, coupled with rising interest expenses, are becoming a major liability.
- The Fed’s balance sheet ballooned to nearly $9 trillion by 2022, filled with low-coupon, long-term bonds—the same types of assets that helped trigger the Silicon Valley Bank collapse in 2023.
- With higher interest rates, the market value of those bonds has plummeted, leaving the Fed with unrealized losses estimated between $800 billion and $1 trillion.
- Unlike private banks, the Fed isn’t required to recognize these losses, as it can hold the bonds until maturity. But that doesn’t change the fact that its financial health is deteriorating.
Meanwhile, the Fed’s negative cash flow continues to spiral. The central bank has already stopped sending surplus funds to the Treasury, and its $210 billion in operating losses are mounting with no end in sight.
The Bottom Line: The Fed’s Days of Free-Spending Are Over
For years, the Federal Reserve has been treated as a sacred cow, free to manipulate markets, print trillions, and prop up reckless government spending with little oversight. But under Trump’s second term and a Republican-controlled Congress, those days are coming to an end.
The Fed’s financial mess won’t disappear overnight, but with Republicans holding Powell’s feet to the fire, and Elon Musk’s DOGE team exposing inefficiencies, expect a new era of accountability for America’s central bank.
The Washington establishment may not like it, but the American people deserve the truth.
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