The Federal Reserve’s roughly $1 trillion pile of paper losses stemming from its underwater securities holdings have begun to turn into more than $100 billion in actual losses, with no relief in sight.
Fed Chair Jerome Powell is expected on Wednesday to say that easing inflation still isn’t yet near enough to the central bank’s 2% yearly target for interest rates to be lowered from a two-decade high.
The longer rates stay high, however, the harder it will be for the Fed to repair its balance sheet. Importantly, restrictive rates also could end up costing the Fed around $100 billion a year well into the next decade, according to Ali Meli, chief investment officer of Monachil Capital Partners, a credit fund he founded in 2019.
Meli arrived at that estimate by digging through the Fed’s financial statements, which showed a $948.4 billion unrealized loss at the end of 2023 on assets bought on the open market, compared with more than $1 trillion of unrealized losses at the end of 2022.
