For the first time in thirteen years, there will be layoffs! The Federal Reserve will reduce its workforce by 300 people by the end of the year.

Although Powell has been talking about a "strong economy" and "robust employment" in public, the Federal Reserve itself had to take the initiative to "cut losses" first.

A spokesperson for the Federal Reserve revealed to the media on Friday that the Federal Reserve system will lay off about 300 employees by the end of this year. This is the first time since 2010 that the Federal Reserve has reduced its staff. Currently, the 12 regional Federal Reserve banks have a total of 21,000 employees.

The spokesperson stated that the layoffs will mainly focus on backend support departments, such as some unnecessary technical positions, as well as some early retirees.

Just this week, Powell also stated at a press conference after the FOMC meeting, "Economic activity is stronger than we expected, stronger than anyone expected." Based on the optimistic outlook for the economy, the Federal Reserve has raised its economic growth forecast and lowered its unemployment rate forecast.

Loss of $57.3 billion in 2023

The Federal Reserve did not explain the reason for the layoffs. However, based on publicly available information, the layoffs may be related to the Federal Reserve's losses.

The Federal Reserve reported an operating net loss of $57.384 billion in the first half of 2023, and the full-year operating net loss may exceed $100 billion. The last time the Federal Reserve reported an annual operating net loss was in 1915, a gap of 108 years.

According to Huachuang Securities, the consolidated financial statements in the Federal Reserve's quarterly financial report for the first half of 2023 show that:

1. The Federal Reserve's total interest income was $88.388 billion, of which the loan account totaled $5.064 billion and the SOMA account totaled $83.324 billion;

2. The Federal Reserve's total interest expense was $141.847 billion, of which the deposit account totaled $81.910 billion and the SOMA account totaled $59.937 billion;

3. The net income from other items of the Federal Reserve was $0.461 billion;

4. The Federal Reserve's operating expenses were $4.386 billion, of which employee salaries were $1.942 billion.

Therefore, the Federal Reserve's operating net loss = $88.388 - $141.847 + $0.461 - $4.386 = -$57.348 billion.

Huachuang Securities pointed out that the Federal Reserve's losses are mainly due to significant maturity mismatch on its balance sheet, in addition to the rapid expansion and rapid interest rate hikes on the Federal Reserve's balance sheet, which are the reasons for the operating net loss.

Huachuang Securities believes that considering the possibility of further interest rate hikes by the Federal Reserve, the full-year operating net loss of the Federal Reserve may exceed $100 billion.