The Federal Reserve Bank of New York stated on Monday that the unrealized losses on the Fed's substantial bond holdings decreased last year compared to 2024. The paper loss on the 2025 holdings was $844.2 billion, down from an unrealized loss of $1.06 trillion in 2024. This data on unrealized losses was disclosed with the release of the annual report for the System Open Market Account (SOMA) of the central banking system. SOMA represents the Fed's massive portfolio of cash, bonds, and other assets.
The unrealized losses on the Fed’s bond holdings are primarily an accounting phenomenon. In the view of the Fed and many other observers, these paper losses do not impact the Fed's operations, as the central bank has no plans to sell its holdings of U.S. Treasuries and mortgage-backed securities. As long as the Fed holds the bonds to maturity, no losses relative to the purchase price will materialize.
In the report, the Fed stated, "The market value of the SOMA securities portfolio fluctuates with changes in the level of interest rates." It added, "Unrealized gains and losses do not affect net income, remittances to the Treasury, or the Federal Reserve's ability to conduct monetary policy."
Nevertheless, some argue that these paper losses highlight issues with the Fed's use of its balance sheet as a tool for market stability and stimulus. In theory, these losses could potentially translate into real problems at some point.
These unrealized balance sheet losses occur as the Fed, which funds its operations from earnings on financial services and bond holdings, has also been running operational losses. The Fed recorded an operational loss of $19.6 billion last year, a significant narrowing from the $77.5 billion loss in 2024. The Fed indicated that operational losses are similarly not a concern; these losses will be recouped over time as it returns to profitability, a state that appears to have been achieved in recent months.
As of last Wednesday, the total size of the Fed's balance sheet was $6.6 trillion. As of Monday, the SOMA, a sub-component of its overall holdings, stood at $6.3 trillion, which includes $4.4 trillion in U.S. Treasuries and $2 trillion in agency mortgage-backed securities (MBS).
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