The Federal Reserve Owes Itself $235.6 Billion

The Federal Reserve is, among other things, a business: it earns interest on the trillions in Treasury and mortgage bonds it holds, and it used to send most of the profit to the U.S. Treasury every year — $109.0 billion in 2021 alone, per its own audited combined financial statements.▸ Then the Fed raised interest rates to fight inflation, which meant paying banks and money-market funds far more to hold reserves than its older, lower-yielding bond portfolio was earning. Since September 2022 the Fed has not sent Treasury a cent. It cannot report a loss on its balance sheet either, so — as the St. Louis Fed explains — it invented a third option: an accounting entry called the "deferred asset," an IOU the Fed owes itself, that grows every year the losses continue and must be paid down to zero before remittances to Treasury can resume.

In 2025 the Federal Reserve Banks earned $155.3 billion in interest on the securities they hold and another $3.1 billion from fees and other income — $158.4 billion in total.▸ That wasn't enough to cover what the Fed owed out: $147.7 billion in interest paid to banks on their reserve balances, $19.7 billion paid to money-market funds and other counterparties through the overnight reverse repo facility, and $9.8 billion to actually run the institution — salaries, benefits, buildings, equipment, and the assessments that fund the Board of Governors and the Consumer Financial Protection Bureau — across all 12 Reserve Banks combined. The $18.7 billion gap is not paid by anyone. It is booked straight onto the deferred asset, per the Federal Reserve Banks Combined Financial Statements released March 25, 2026.

The interest paid out to banks and reverse-repo counterparties alone — $167.4 billion — is 17 times the $9.8 billion it cost to run the entire Federal Reserve System that year, including the salaries of the roughly 24,875 full-time-equivalent staff budgeted System-wide for 2025.▸ The Fed isn't overpaying its own workforce; it's paying interest, at rates it sets itself, to the banks and funds parking money with it — a cost of fighting inflation that dwarfs the cost of the institution doing the fighting.

The deferred asset didn't exist before September 2022.▸ It has grown every year since — until, for the first time, the most recent data shows it shrinking.

The balance rose from $16.6 billion at the end of 2022 to $133.3 billion in 2023, $216.0 billion in 2024, and a peak of $243.5 billion at the close of 2025 — before easing to $235.6 billion by the week ending July 1, 2026, per the Fed's latest H.4.1 release.▸ That's the first sustained decline since the deferred asset was created, driven by lower interest rates and a shrinking balance sheet cutting what the Fed pays out. The Fed has not committed to a date when remittances resume — that depends on where rates go from here — but the mechanism is fixed: whenever the Reserve Banks return to positive net income, the first dollars of profit pay down the deferred asset, not the Treasury, until the whole $235.6 billion balance is cleared.

Figures are drawn from the Federal Reserve's own audited combined financial statements and its weekly H.4.1 statistical release; the deferred asset is a System-wide accounting balance, not a debt owed to any outside party, and does not affect the Fed's ability to conduct monetary policy or meet its financial obligations.