NextFin News - The Federal Reserve Bank of New York projected on Monday that its net income could return to positive territory as early as this year, signaling a potential turning point for the central bank’s strained finances following a historic period of operational losses. According to the New York Fed’s annual report on open market operations, the shift is driven by a combination of declining interest expenses on bank reserves and the steady maturation of the Fed’s massive bond portfolio.
The New York Fed, which manages the System Open Market Account (SOMA) on behalf of the entire Federal Reserve System, has faced unprecedented financial pressure since 2022. As U.S. President Trump’s administration navigates a complex economic landscape in 2026, the central bank’s internal accounting has become a focal point for fiscal hawks. The "deferred asset"—an accounting entry representing the amount of future earnings the Fed must retain before it can resume sending profits to the U.S. Treasury—reached record highs over the past two years as the cost of paying interest to commercial banks exceeded the income earned on the Fed’s holdings of Treasuries and mortgage-backed securities.
The projections released today suggest that the gap is finally closing. The New York Fed staff noted that if interest rates continue their current trajectory, the interest paid on reserve balances and the overnight reverse repo facility will drop sufficiently to allow the SOMA portfolio to generate a net profit. This would mark the first time the Fed has been "in the black" on an operational basis since the aggressive rate-hiking cycle began. However, the report clarifies that "positive net income" does not mean immediate payments to the Treasury; the Fed must first pay down the multi-billion dollar deferred asset accumulated during the lean years.
Roberto Perli, the manager of the SOMA portfolio, has long maintained a pragmatic stance on the Fed’s balance sheet, arguing that the central bank’s primary mission is price stability and maximum employment, not profit maximization. Perli, a former private-sector economist known for his meticulous tracking of Fed liquidity, has consistently signaled that the "paper losses" do not impair the Fed’s ability to conduct monetary policy. His team’s latest forecast aligns with this view, treating the return to profitability as a mechanical outcome of a stabilizing interest rate environment rather than a shift in policy goals.
While the New York Fed’s outlook is optimistic, it does not represent a unanimous consensus among market participants. Some private-sector analysts, including those at Wrightson ICAP, have cautioned that the timeline for returning to positive income remains highly sensitive to the pace of quantitative tightening and the "neutral" level of interest rates. If inflation proves stickier than anticipated, forcing the FOMC to hold rates higher for longer, the cost of the Fed’s liabilities could remain elevated, pushing the break-even point further into 2027 or beyond.
The financial health of the New York Fed also carries political weight. Under U.S. President Trump, the administration has scrutinized the Fed’s independence and its impact on the federal deficit. A return to profitability would eventually resume the flow of remittances to the Treasury, which historically averaged nearly $100 billion annually before the pandemic. For now, the New York Fed’s report serves as a technical roadmap for a balance sheet in transition, moving away from the emergency footing of the early 2020s toward a more traditional operational profile.
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