The Indicator from Planet Money Why the Fed could lose $1.5 trillion
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Jul 31, 2025 The Federal Reserve is grappling with a staggering $1.5 trillion loss linked to its pandemic initiatives. Experts debate the risks and benefits of quantitative easing, revealing contrasting views on its effectiveness. The discussion dives into the Fed's drastic measures, like slashing interest rates to fuel recovery. Further, listeners learn about the implications of bond purchases and the financial burden this has created. Lastly, the podcast tackles the challenges of maintaining transparency and independence in the Fed's monetary policy amidst growing scrutiny.
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Fed's Quantitative Easing Costs
- The Fed created money "out of thin air" to buy treasury bonds and mortgages during quantitative easing. - However, it still has to pay interest on the money created, making QE not costless.
Rising Interest Rates Hurt Fed
- The Fed initially benefited because the interest paid on bonds was higher than the interest it owed on created money. - But as interest rates rose, the Fed faces higher costs, making the QE deal less favorable.
Fed's Financial Losses Impact Taxpayers
- The Fed traditionally makes money by issuing currency and investing in treasury bonds. - Recently, due to rising costs and interest expenses, the Fed has lost billions, transferring cost burdens to taxpayers.