NY Fed paper loss shrank

The Federal Reserve’s paper loss on its bond portfolio fell to $844.2 billion in 2025, down from $1.06 trillion in 2024. (reuters.com) The figure came from the New York Federal Reserve’s annual report on the System Open Market Account, the portfolio that holds the central bank’s Treasury securities and agency mortgage-backed securities. The New York Fed executes those transactions for the Federal Open Market Committee. (newyorkfed.org, newyorkfed.org) A paper loss is the gap between what the Fed paid for bonds and what those bonds would fetch at current market prices. When interest rates rise, older bonds with lower yields usually fall in market value, even if the holder does not sell them. (reuters.com, stlouisfed.org) The Fed built that portfolio during and after the coronavirus pandemic, when it bought large amounts of bonds to hold down borrowing costs and support financial markets. From 2022 until December 2025, the Fed then reduced its securities holdings by more than $2 trillion as it let bonds run off its balance sheet. (newyorkfed.org) In 2024 alone, holdings of Treasury securities and agency mortgage-backed securities fell by nearly $700 billion, with Treasury holdings dropping to $4.29 trillion from $4.79 trillion and agency mortgage-backed securities falling to $2.23 trillion from $2.42 trillion. (newyorkfed.org) By April 1, 2026, total System Open Market Account holdings stood at about $6.29 trillion, including about $3.58 trillion in Treasury notes and bonds, $396.4 billion in Treasury bills, and about $1.99 trillion in agency mortgage-backed securities. (newyorkfed.org) The smaller paper loss improves the look of the Fed’s balance sheet, but it does not change how monetary policy works. Reuters reported that New York Fed officials said the unrealized losses had no implications for the conduct of monetary policy. (reuters.com) The Fed has also been dealing with operating losses, which are separate from paper losses on bonds. In its November 2025 balance sheet report, the Board of Governors said the Federal Reserve System had a consolidated deferred asset of $242 billion as of September 24, 2025, tied to accumulated negative net income. (federalreserve.gov) That deferred asset means the Fed pauses remittances to the Treasury until earnings turn positive again and cover the shortfall. The Board said negative net income does not affect the Fed’s ability to conduct monetary policy or meet its obligations. (federalreserve.gov) The balance sheet itself kept shrinking into 2025, then stopped running off in December when the Federal Open Market Committee judged reserve levels had reached an ample range and directed the New York Fed’s trading desk to begin reserve management purchases. (newyorkfed.org) So the Fed entered 2026 with a smaller bond-market loss than a year earlier, a smaller portfolio than at its pandemic peak, and the same inflation job still in front of it. (reuters.com, newyorkfed.org)