The Federal Reserve in 2025

The Federal Reserve’s structure and mission

The Federal Reserve, created in 1913, is the United States’ central bank. It has multiple mandates: promote maximum employment, keep prices stable and maintain moderate long‑term interest rates. To accomplish these tasks the Fed sets short‑term interest rates, supervises banks, provides payment services and acts as a lender of last resort. It is organised as a hybrid public–private system: the Board of Governors in Washington, D.C., sets policy and oversees 12 regional Federal Reserve Banks that serve their districts. This structure reflects the compromise between centralised control and regional representation that was designed to give the Fed independence from day‑to‑day politics.

Assets on the balance sheet – down from the pandemic peak

The Fed’s balance sheet exploded during the 2008 financial crisis and again in 2020 as it purchased government bonds and mortgage‑backed securities to support markets. As of 11 June 2025 the Monetary Policy Report showed total assets of $6.677 trillion. This is down from $6.854 trillion on 8 January 2025 and from a peak above $8.9 trillion in early 2022. Table 1 of the report details the components: Treasury securities ($4.85 trillion), agency debt and mortgage‑backed securities ($2.28 trillion), unamortised premiums and discounts ($‑0.33 trillion), loans (discount‑window and other programs) and other assets federalreserve.gov. The decline reflects the Fed’s ongoing balance‑sheet runoff, where it allows maturing securities to roll off without reinvestment, effectively reversing its earlier quantitative‑easing purchases. FRED’s weekly data confirm that as of 23 July 2025 the balance sheet stood at $6.658 trillion, illustrating that the runoff has continued fred.stlouisfed.org.

Besides securities, the Fed holds loans and other assets. The Bank Term Funding Program (BTFP), created in 2023 to stave off a banking panic, was fully repaid by March 2025 federalreserve.gov. The Fed also holds deferred assets – essentially IOUs representing cumulative operating losses. By June 2025 the deferred asset had reached about $232 billion federalreserve.gov, reflecting the difference between interest paid on reserves and low returns on the Fed’s bond portfolio. These losses do not threaten solvency but delay remittances to the U.S. Treasury.

Liabilities

On the liability side, the largest entries are reserve balances from commercial banks and the U.S. Treasury’s general account. The Fed also issues Federal Reserve notes (cash) and pays interest on reserve balances (IORB) to banks to influence short‑term rates. The decline in assets has led to a decrease in reserves held at the Fed; however, reserves remain abundant relative to pre‑2008 levels.

How many people work at the Fed?

The Fed is a large employer, operating not only policy functions but also cash operations, technology services and the consumer‑protection and research staffs in each district. According to the 2023 Annual Report on budgets, the Board of Governors authorised 3,007 positions for 2024 and 152 positions for the Office of Inspector General federalreserve.gov. The currency function (U.S. currency printing supervision) adds another 24 positions federalreserve.gov.

The Federal Reserve Banks collectively employ far more people. Table D.11 of the same report lists 21,238 full‑time‑equivalent (FTE) positions budgeted for 2024 across the 12 Reserve Banks and National IT federalreserve.gov. Combining the Board and district figures yields a workforce of roughly 24,400 employees in 2024. A 2025 policy brief from the Mercatus Center points out that the Fed’s staffing has grown by about 20 % since 2010 even as other financial regulatory agencies have shrunk; it notes the Fed Board employs more staff than the powerful New York Fed mercatus.org. Fed Chair Jerome Powell told staff in May 2025 that the Fed plans to reduce headcount by about 10 % over the next couple of years to streamline operations reuters.com.

Salaries and compensation

The Mercatus brief also highlights that inflation‑adjusted salaries of Fed Board staff rose nearly 80 % between 2007 and 2020, making compensation at the Board high relative to other agencies mercatus.org. High salaries may help the Fed attract talent but also raise concerns about bureaucratic growth and accountability.

Political leanings of Federal Reserve economists and employees

The Federal Reserve strives to be independent of partisan politics, and directors are barred from overt political activity federalreserve.gov. However, employees still have personal political beliefs, and those views can influence culture and research agendas.

A 2022 study by The Independent Institute examined the party registration of the Fed’s economists. It found that across the entire system the ratio of registered Democrats to Republicans was 10.4 to 1 independent.org. The imbalance was especially pronounced at the Board of Governors, where the ratio was 48.5 to 1 (97 Democrats and only 2 Republicans) independent.org. At the regional banks the ratio was about 6.17 to 1, with substantial variation by district. The San Francisco Fed had a 12:1 Democrat–Republican ratio, Dallas 8:1, Philadelphia 7.8:1, Boston 5:1, New York 4.6:1, Cleveland 3:1, and the Atlanta Fed had no registered Republican economists independent.org. In leadership positions the imbalance was even greater: the study reported a 22.25 to 1 Democrat–Republican ratio across the system and 14.67 to 1 at the regional banks independent.org.

Political donations follow similar patterns. Reporting during the 2024 election cycle showed that more than 90 % of contributions from Fed employees went to Democratic candidates, with large donations clustered in blue‑leaning cities like San Francisco and New York yahoo.com. While employees have the right to donate, the imbalance illustrates the cultural homogeneity that pervades the institution.

Implications

An institution dominated by one ideology risks group‑think. Monetary policy benefits from robust debate; a homogenously progressive staff may underappreciate supply‑side constraints, while a homogenously conservative staff might dismiss distributional concerns. The Fed’s structure provides some diversity through regional banks, but the numbers above suggest the ideological spread remains narrow.

What the Fed said before major market corrections

Central bank pronouncements often convey confidence; sometimes that confidence has proved misplaced. Below is a tour of notable Fed statements preceding major market corrections and crises.

1929 stock‑market crash – admonitions about speculation

In the late 1920s the Fed became concerned about rampant margin lending and stock‑market speculation. In March 1929 the Federal Reserve Board issued guidance instructing member banks not to lend for speculative purposes and publicly warned that “the Federal Reserve Act did not contemplate using its resources for speculative credit” federalreservehistory.org. Many observers felt the Fed should have raised rates more aggressively; nonetheless, the warning signaled that policymakers saw risk building months before the October crash. The caution was not enough to stop the speculative frenzy, and when the market collapsed in October the Fed cut rates and provided liquidity.

1987 – Black Monday and Greenspan’s liquidity pledge

Markets surged almost 44 % in the first eight months of 1987 before collapsing on 19 October 1987 (“Black Monday”). There were no high‑profile Fed warnings; monetary policy had been tightening but Chair Paul Volcker was focused on controlling inflation. When the crash occurred, newly appointed Chair Alan Greenspan issued a statement the next morning that the Fed “affirmed its readiness to serve as a source of liquidity to support the economic and financial system” federalreservehistory.org. The Fed encouraged banks to continue lending normally, setting a precedent for the “Fed put” – investors’ belief that the central bank would intervene to cushion markets federalreservehistory.org.

1996 – “Irrational exuberance” and the dot‑com bubble

On 5 December 1996, with U.S. equities already well into a multi‑year rally, Chair Greenspan delivered a dinner speech titled “The Challenge of Central Banking in a Democratic Society.” He famously asked, “How do we know when irrational exuberance has unduly escalated asset values?” and warned that policy makers should not be complacent about the “complex interactions of asset markets and the economy” federalreserve.gov. The phrase “irrational exuberance” became shorthand for concerns about overpriced tech stocks, yet the speech did not trigger a policy change. The dot‑com bubble continued inflating until it burst in 2000.

2007 – Subprime mortgage crisis

During testimony before Congress on 28 March 2007, Chair Ben Bernanke acknowledged the troubles in subprime mortgages but expressed confidence that the issues would not spill over: “the impact on the broader economy and financial markets of the problems in the subprime market seems likely to be contained” federalreserve.gov. He noted that delinquencies in prime mortgages were low and that the Fed would continue to monitor the situation federalreserve.gov. Months later the subprime contagion spread through the financial system, culminating in the 2008 crisis. Bernanke’s testimony remains a classic example of underestimating systemic risk.

2020 – Pandemic crash

At the start of 2020 the economy was growing modestly after three rate cuts in 2019. In a 29 January 2020 press conference, Chair Jerome Powell remarked that the outlook was positive, with solid household spending and low inflation. He acknowledged “the new coronavirus … poses a risk” but stated that the Fed’s monetary policy stance was “appropriate” and expected “moderate economic growth” federalreserve.gov. Less than two months later the pandemic shut down the global economy. On 15 March 2020 the Fed cut interest rates to near zero and began massive asset purchases, noting that the coronavirus had “harmed communities and disrupted economic activity in many countries, including the United States,” though the economy had been on a “strong footing” leading into the shock federalreserve.gov. The policy response helped stabilise markets, but the initial optimism illustrates how quickly conditions can change.

2021–2022 inflation surge and market correction

In 2021 the Fed argued that rising inflation was “transitory,” attributing price increases to supply‑chain disruptions and base effects. Officials maintained a near‑zero policy rate through much of 2021 and continued asset purchases. Equity markets hit all‑time highs in late 2021 but tumbled in 2022 as inflation proved persistent, prompting the Fed to launch the fastest rate‑hiking cycle since the early 1980s. Though explicit citations for transitory language are beyond the scope of this blog, the episode underscores the risks of relying on central‑bank predictions in uncertain times.

Lessons for investors and policymakers

1. The Fed’s power is vast but constrained. Its balance sheet remains enormous at about $6.7 trillion fred.stlouisfed.org. Runoff is reducing liquidity, but the Fed’s holdings are still more than twice their pre‑2008 level. Investors should understand how asset purchases and runoff affect liquidity and risk premiums.

2. Staffing and culture matter. With more than 24,000 employees and salaries that have risen sharply federalreserve.govmercatus.org, the Fed is more than a handful of policymakers—it is a large bureaucracy. Its decisions are shaped by research produced by economists who skew heavily Democratic independent.org. Diversity of thought may be limited, which can influence policy outcomes.

3. Beware of official assurances. History shows that Fed leaders often exude confidence before crises—whether telling Congress that subprime risks are “likely to be contained” federalreserve.gov or downplaying a novel coronavirus federalreserve.gov. These statements may reflect information available at the time, but markets can change rapidly. Investors should not rely solely on central‑bank guidance and must build resilience into portfolios.

4. Independence vs. accountability. The Fed’s design seeks to insulate it from partisan interference, yet the overwhelming political alignment of its staff and the revolving door with Wall Street pose challenges for credibility. Reforms that encourage ideological diversity and transparency could strengthen the institution.

5. Inflation remains the central challenge. With inflation still above the 2 % target, investors should expect the Fed to keep policy restrictive well into 2026. Monetary policy operates with long lags; the combination of balance‑sheet runoff and higher rates could continue to pressure risky assets