If the Fed has to raise interest rates a lot, it could begin to incur capital losses

It's notable the degree to which these concerns were aired out in FOMC discussions and briefing memos during QE3 in 2012-13.

Powell in 2012: "We’re going to be paying billions of dollars of interest to our largest financial institutions and nothing to the taxpayer…" pic.twitter.com/Rc7PDyjAPS

— Nick Timiraos (@NickTimiraos) May 22, 2022

The Fed staff at that meeting included a briefing on the prospect that QE3 might run on for longer.

Inside that analysis was a study of what an interest-rate shock might do re: losses on the balance sheet

And how not selling MBS might help https://t.co/VaN2qEtjhZ (page 10) pic.twitter.com/d5gexflAnz

— Nick Timiraos (@NickTimiraos) May 22, 2022

Staff memos also reviewed how foreign central banks had addressed episodes of capital losses https://t.co/i2zYZPzyon

All of this featured in a lively debate on the prospect of remittance smoothing and how to mitigate capital losses at the March 2013 FOMC https://t.co/h1QY9Xxo7R

— Nick Timiraos (@NickTimiraos) May 23, 2022

Charlie Evans circles back to the point Yellen made two meetings earlier: If it is a problem of optics, then the optics can be addressed by achieving the Fed's goals, which are to ensure optical economic outcomes (as opposed to turning profits) https://t.co/h1QY9Xxo7R (p. 175) pic.twitter.com/PeAQL9m18y

— Nick Timiraos (@NickTimiraos) May 23, 2022