The Federal Reserve Bank of New York said on Monday that the unrealized loss on the U.S. central bank's large bond portfolio fell in 2025 compared with the previous year, narrowing to $844.2 billion from $1.06 trillion in 2024. The figures were disclosed in the annual report for the Fed's System Open Market Account (SOMA), the portfolio that holds the central bank's cash, Treasuries and agency mortgage-backed securities.
Officials and the report emphasize that these unrealized losses are primarily an accounting consequence of market price movements and do not reflect an intention to sell holdings. The Fed and many observers argue that so long as securities are held to maturity, the institution will not realize losses relative to the purchase price.
Explaining the mechanics, the report states:
"the market value of the SOMA securities portfolio fluctuates with changes in the level of interest rates."It also reiterates that
"unrealized gains and losses have no effect on net income or remittances to the Treasury or on the ability of the Federal Reserve to conduct monetary policy."
Despite that accounting framing, the report acknowledges that some market participants view the paper losses as a blemish on how the Fed has used its balance sheet for market stabilization and stimulus. Those observers say the unrealized losses present a theoretical risk of becoming an actual financial issue at some point, although the report does not quantify such a scenario.
The unrealized valuation effects come as the central bank also reported an operating loss for the year, though substantially smaller than the prior year. The Fed recorded a $19.6 billion operating loss for the latest year, down from a $77.5 billion loss in 2024. The institution characterizes its operating loss as a manageable item and notes that as it returns to profitability it will repay that loss over time; recent months indicate a return to profitability.
The underlying dynamics that produced both the unrealized accounting losses and the operating shortfall are linked to the Fed's large-scale asset purchases. The central bank expanded its holdings significantly during the COVID-19 period, more than doubling the size of its portfolio to a peak of $9 trillion by 2022. After that peak, officials allowed set amounts of maturing bonds to roll off the portfolio rather than reinvesting proceeds, which reduced holdings by just over $2 trillion by the end of last year.
Beginning in December, the Fed resumed rebuilding its holdings for technical reasons, aiming to ensure sufficient cash in financial markets ahead of the April 15 tax date. The report notes the Fed intends to scale back its large-scale purchases of short-term Treasury bills after the tax date, but it remains unclear when that moderation will take place.
On a snapshot basis, the Fed's overall balance sheet measured $6.6 trillion as of last Wednesday. The SOMA component was $6.3 trillion as of Monday, consisting of $4.4 trillion in Treasury securities and approximately $2 trillion in agency mortgage-backed securities.
These disclosures shed light on the accounting profile and operational posture of the Fed's market interventions. While the institution frames the unrealized losses as a mark-to-market effect with no operational consequence, they remain a focal point for observers monitoring the interplay between the Fed's balance-sheet tools and financial stability.