Federal Reserve interest rate hikes are painful for the economy. But they are also painful for the Federal Reserve itself. There are two elements here: 1. The return on the Fed’s bond holdings, and 2: Interest rate payments that the Fed itself needs to pay. Both of these are off the charts and implicate the Fed in a self-harming process that’s far from complete. Let’s take these one at a time. First to the Fed’s bond holdings. These have rocketed through various iterations of emergency bond buying (the Great Financial Crisis and the pandemic), and have left the Fed with a large bond portfolio on its hands. Total ... (full story)