As a layperson, "For the First Time, the Fed is Losing Money" as a headline from the Wall Street Journal is concerning. A lot of people are going to see that headline, and read just the first couple of paragraphs - not gonna pay for a subscription - and their takeaway in what they perceive of this economic climate is going to be that the Federal Reserve is on its way to insolvency. It doesn't really matter if that's even possible. Is it possible? I don't know if it is or not.

I agree with the GP that it's a scary headline. I wouldn't call myself hysterical; I'm not hyperventilating or anything.

The issue with the headline is not with people who understand finance, it's with people who don't but know enough to see the WSJ as an authority. They won't notice that it's an opinion piece, and they don't really know enough to understand if this is actually a problem or not.

If something has never ever happened in the history of an institution, but was happening now, it deserves being written about, no?

It absolutely can happen. Not necessarily that they become insolvent to the point of closing up shop because they can borrow from the treasury (so long as the debt ceiling gets raised sufficiently) but they are basically already there.

They are paying more than they are taking in and are having a shortfall to the treasury.

It’s more complicated than that. They don’t just hold bonds that have diminished in value and are underwater, they are borrowing money through the reserve program at higher interest rates than they are collecting. It’s the exact thing that sank svb but on a much larger scale. In a normal environment they lend at a higher rate than they borrow and remit the excess to the treasury. Now they are having to borrow.

This is another interesting dynamic in the Fed’s fight against inflation because ideally they’d like to actively sell some of their portfolio to increase QT but I’m not sure they can because of the losses they would be forced to realize. This is largely why they have taken a “passive” approach to balance sheet drawdown.

For two years everyone bragged about getting 2.5% mortgages and now are loving collecting an easy 4.5% on six month bonds. But people forget there’s always someone on the other side of a trade and now that the tide is going out we are seeing exactly who they are.

I think it is not that important of a story. Worth paying attention if the patterns continues though the Fed is not a traditional bank and shouldn't be confused as such (many of the HN readers try and conflate the two much to their own embarrassment and which highlights their ignorance on the topic).