Jason Furman would not be of the opinion that “Profits and Losses Don’t Matter at the Federal Reserve” (WSJ, Sep 28, 2023) if he had any idea just how large those losses were.
Furman is incorrect to state that the Fed's assets are "worth $8 trillion." $8 trillion is the book value of the "longer-term government bonds and mortgage-backed securities" on the Fed balance sheet. Mark them to market and their value drops dramatically.
Like Silicon Valley Bank, the Fed ran precarious duration risk on bonds purchased, and they lost. Fed Treasury bonds were purchased when rates were 1-2%. Rates on those securities today are 4-5%. A 100% increase in rates like this causes a 30-year Treasury bond to fall nearly 50% in value. Likewise, the Fed’s mortgage-backed securities, mostly 30-year, were purchased when mortgage rates were 2.5% to 4%. Today mortgage rates are twice that, over 7%. These securities could also be down 50% in value depending on duration. Total losses on the asset side of the Fed's ledger could therefore be in the range of $3 trillion to $4 trillion.
It is time the Fed tell American taxpayers just how many trillions of dollars have been lost on securities held, most purchased long after the need for QE had passed. Herein may lie the reason the Fed refuses to sell assets from their balance sheet: such sales would require recognizing these enormous unjustifiable losses.
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