Opinion

Who Owns Federal Reserve Losses and How Will They Impact Monetary Policy?

Alex J. Pollock,Paul H. Kupiec,Mises Institute

7/6/2022|Updated: 7/9/2022

0:00

Commentary

Among Federal Reserve officials and many economists, it is fashionable to argue that any losses the Federal Reserve should suffer, no matter how large, will have no operational consequence. Is this true? If so, how does the Fed account for its losses and stay solvent? And who ends up paying for these losses? As the Fed executes its strategy to reign in run-away inflation, the answers to these questions take center stage as the Fed has already experienced mark-to-market losses of epic proportions and will soon post large operating losses, something it has never faced in its 108-year history.

Alex J. Pollock is a senior fellow at the Mises Institute. Previously he served as the principal deputy director of the Office of Financial Research in the U.S. Treasury Department (2019–2021), distinguished senior fellow at the R Street Institute (2015–2019 and 2021), resident fellow at the American Enterprise Institute (2004–2015), and president and CEO, Federal Home Loan Bank of Chicago (1991–2004). He is the author of “Finance and Philosophy: Why We’re Always Surprised” (2018) and “Boom and Bust: Financial Cycles and Human Prosperity” (2011), as well as numerous articles and Congressional testimony. Pollock is a graduate of Williams College, the University of Chicago, and Princeton University. His professional and academic work is available on his website.