According to CCTV news reports, according to CNN, a spokesman for the US Federal Reserve said on the 22nd that the Fed system will cut about 300 employees before the end of this year, which is the first time the institution has cut employees in 13 years. In recent years, the agency's headcount has reportedly been growing year over year as the Fed's influence in the economic and regulatory agenda has expanded. The layoffs are the Fed's first since 2010, and the layoffs are mainly for support positions.
The Fed lost more than $57.3 billion in the first half of the year
The layoffs come at a sensitive time for the Federal Reserve. According to the Fed's earnings report, the institution has a huge loss on its books, and the loss is gradually expanding. The Fed's financial statements for the first half of this year show that at the end of June, the size of the Fed's assets was $8.34 trillion, but at the same time, the loss in the first half of the year exceeded $57.3 billion.
Expert analysis丨The Fed's current round of aggressive interest rate hikes has affected itself
Expert analysis believes that the Fed's losses are mainly due to obvious term mismatches in the balance sheet. In addition, the rapid expansion of the Fed's balance sheet and the intensive interest rate hikes since last year are also reasons for its net operating loss. It can be said that the Fed's aggressive interest rate hike this round has also had a negative impact on itself.
In response to high inflation in the United States, the Federal Reserve began the current cycle of interest rate hikes in March 2022. There have been 11 rate hikes, with a cumulative increase of 525 basis points, pushing interest rates to the highest level in 22 years.
Experts say that judging by the Fed's balance sheet, the Fed holds a large amount of U.S. Treasuries. Many of these bonds were held by the Fed for a long time during periods of low interest rates, and as fixed income products, these low-rate bonds generate limited interest income. As the Fed raised interest rates sharply and market yields increased, the price of these Treasuries fell sharply, which is one of the main reasons for the Fed's book losses. High interest rates also lead to an interest rate mismatch between assets and liabilities in the Fed's balance sheet, that is, the interest rate on Fed assets is low, but the interest rate on liabilities is high, which in turn leads to a widening gap between its income and expenditure.
Hu Jie, professor at Shanghai Advanced Institute of Finance, Shanghai Jiao Tong University: Since the Fed's interest rate hike has led to an increase in interest rates in the entire market over the past year, the assets held by the Fed, that is, a large number of government bonds, have depreciated on the books. So in an accounting sense, the Fed is indeed in a loss-making state.
Wang Qing, chief macro analyst of Oriental Jincheng: Because it receives less interest on its low-interest bonds, this leads to the Fed's books showing that its income is relatively low. From the perspective of liabilities, the Fed's liabilities are mainly the deposits of financial institutions in the Fed. The interest on these deposits needs to increase with the Fed's rate hike since last March, so the interest that the Fed needs to pay will also rise. This leads to a mismatch in interest rates on the balance sheet, which also exacerbates the Fed's income and expenditure gap and increases its book losses. More importantly, judging by the results of the latest Fed interest rate meeting, high interest rates may need to be maintained for a while. This means that the Fed will continue to lose money for a long time to come. This is the main reason for this layoff, and can also be seen as an additional consequence of the previous sharp interest rate hike.
In addition, the jobs that the Fed system will cut by the end of the year will mainly target support jobs. Experts say this is related to the use of new technologies.
Tian Lihui, Dean of the Institute of Financial Development of Nankai University: With the increase in the application of new technologies in work, it is also necessary to adjust the organizational structure of the back-office support department to adapt to new needs. Therefore, due to the change of job functions, it is also one of the reasons why the Fed made this decision to cut employees.