Operating losses means that the Federal Reserve is paying out interest to banks in excess of the amount that it is earning in interest. Historically that wasn’t possible because the Federal Reserve didn’t pay interest on reserves. It has to do so now because its balance sheet is so large due to QE that it can’t influence rates by shrinking its balance sheet.
This is significant because the losses are born by the taxpayer which violates the constitutional mandate that all spending is approved by the house. The Fed is sidestepping this by booking the operating losses in an accrual account to be booked against future interest earned.
This is significant because the losses are born by the taxpayer which violates the constitutional mandate that all spending is approved by the house. The Fed is sidestepping this by booking the operating losses in an accrual account to be booked against future interest earned.