Mark-to-Market Loss on Fed’s Assets
The Fed’s intention to hold assets on its balance sheet to maturity may partly be attributable to the potential losses that could come from such asset sales. Our estimate shows that the spike in bond yields since the first quarter of this year has caused a mark-to-market loss of $192 billion on the Fed’s holding assets, equivalent to approximately all of the unrealized gains that the Fed had accumulated since it began to implement quantitative easing in late 2008. Although in keeping with their own accounting principles the Fed does not record mark-to-market losses, a continued increase in bond yields would incur actual losses should the central bank decide to sell assets.
CUMULATIVE UNREALIZED GAINS IN THE FEDERAL RESERVE’S PORTFOLIO*