Fed Governance, Balance Sheet & Losses: What Ends Dec 1, 2025 Mean for Policy

The recent data on “About the Fed” from the Fed’s own website provide essential baseline information about its statutory responsibilities, governance, and internal structure. These are complemented by Congressional Research Service (CRS) analyses that clarify recent trends in the Federal Reserve’s balance sheet and income statement, which are crucial to understanding strategic policy and budgetary implications.

1. Mission & Functions. Under the Federal Reserve Act, the central bank is charged with five broad responsibilities: (i) monetary policy to achieve maximum employment, stable prices, and moderate long-term interest rates; (ii) financial system stability and systemic risk monitoring; (iii) oversight and regulation of financial institutions for safety & soundness; (iv) ensuring payment & settlement system effectiveness; and (v) consumer protection, community development, supervision and enforcement. This codifies dual mandates and broad safety-net roles.

2. Organizational structure and governance. The Fed comprises the Board of Governors (located in D.C.), twelve regional Reserve Banks, each with their own district responsibilities. The Board has seven governors nominated by the President and confirmed by the Senate, each serving 14-year terms; the Chair, Vice Chair, and Vice Chair for Supervision are chosen from among them. Regional bank boards include Class A, B, C directors, with varying appointment mechanisms—some elected by member banks and others by the Board of Governors. This structure ensures regional input and systemic oversight.

3. Current leadership. The Board is currently led by Chair Jerome H. Powell; Vice Chair Philip N. Jefferson; Vice Chair for Supervision Michelle W. Bowman. Other Governors are Michael S. Barr; Lisa D. Cook; Stephen I. Miran; Christopher J. Waller. Important to note: one seat, currently held by Miran, is an unexpired term (formerly held by Kugler) that ends in January 2026. Powell’s chair term ends May 2026 though his Board‐seat extends to 2028. Other governors’ terms range through 2027-2038. This creates potential upcoming leverage points for presidential appointments.

4. Financial condition & strategic implications. Independent of the “About the Fed” piece layer, CRS data indicate the Federal Reserve’s balance sheet has declined from roughly $8.9 trillion in 2022 to about $6.5-$6.7 trillion by late 2025. Treasury and agency mortgage-backed securities holdings constitute the bulk of assets. The Fed has also posted sustained negative net income over multiple quarters, leading to creation of a large deferred asset (e.g. ~$200 billion as of September 2024) due primarily to interest expense on reserves and reverse repos outpacing income from securities. Though these accounting losses do not impair the Fed’s ability to conduct policy, they raise concerns about remittances to the Treasury, potential political risk, and the optics of central bank finances.

5. Strategic implications & open questions. The evolving composition of leadership with expiring terms (Miran’s early-term seat in January 2026; Powell’s chair term in May 2026) opens up opportunities for change in policy direction, depending on nominees’ monetary, regulatory, and systemic risk philosophies. The Fed’s decision in October 2025 to end active balance sheet runoff (quantitative tightening) and to cap or reinvest maturing assets signals a shift in response to liquidity constraints. Meanwhile, the financial condition (deferred asset, losses) could affect the Fed’s budgetary relations with Treasury and its credibility among markets and Congress. Also, the structure and regional composition of the Fed—including Reserve Bank boards—matter in insights used by FOMC and oversight. Open questions remain about how the Fed will balance rate cuts pressure, restoring profitability, maintaining reserve levels, and defending its independence amid political scrutiny.