About 300 employees of the U.S. Federal Reserve system will lose their jobs this year, a minor but unusual fall in the workforce for a company that has been gradually expanding since 2010 as its influence in the economy and regulatory agenda have grown.

According to a Fed spokesperson, the job cuts are concentrated on the staff of the 12 regional reserve banks that make up the U.S. central bank and primarily affect positions in information technology, including some that are no longer necessary due to the proliferation of cloud-based software, and positions related to the Fed’s various payment processing systems that are being consolidated.

The spokesperson, who declined to be named for fear of being accused directly, said that the employee reductions were the result of both layoffs and attrition, including retirements.

The number of employees budgeted for the system, which includes its regional banks, the Board of Governors in Washington, D.C., and three smaller units, is expected to decrease by more than 500 positions between 2022 and 2023, from 24,428 to 23,895.

Although modest in comparison to the scale of the Fed, this is the first decrease in budgeted headcount since 2010.

In light of the fact that actual employment in 2022 was below target – a December Fed memo cites “higher than-budgeted turnover and extended lags in filling open positions,” particularly in the area of bank supervision, as the reason – the number of positions being cut this year is somewhat lower than the budgeted decline.

When the Fed closes its books on 2023 and delivers its most recent annual report early next year, the amount of any decline in actual employment will be apparent.

Although it doesn’t specifically mention staff reductions, the Board of Governors division that is in charge of the regional reserve banks’ December memo emphasises the necessity of adhering to internal budgeting procedures, “with the most important focal points being alignment with long-term strategy and stewardship of public funds.”

The Fed is experiencing a sensitive period as a result of the workforce reductions. In the most recent months, it has recorded losses of $100 billion on operations that now entail paying banks more in interest on reserve deposits at the Fed than the central bank makes from its nearly $7.5 trillion bond and mortgage-backed securities portfolio.

The Fed is self-funding, in contrast to government agencies that use tax money given by Congress. The system’s about $6.3 billion in yearly expenses are covered by earnings from asset holdings and fees charged to banks for a variety of services. Nearly 24,000 individuals work for the system in Washington and other cities across the nation.

The U.S. Treasury receives a profit from the Fed in the majority of years. However, since the central bank started raising interest rates to combat an increase in inflation, it has been spending more each year than it is earning, effectively issuing an IOU to the Treasury to be reimbursed later.

Although the Fed’s losses are unrelated to the staff reductions, Republicans in Congress have expressed concern about the Fed’s involvement in topics like climate change and the economics of inequality that they believe go beyond the central bank’s purview of monetary policy and bank supervision.

As the paper cheque era came to an end, the Fed was able to reduce the hordes of employees needed to clear and process those documents, which resulted in a decrease in system-wide jobs from just under 24,000 in 2003 to 19,735 in 2010.

According to annual Fed budget and financial reports submitted to Congress, staffing has increased every year since then as a result of Congress piling on new duties in the wake of the financial crisis and recession that occurred between 2007 and 2009, the push to modernise and expand the role of the Fed in processing payments, and new financial stability and other initiatives.

(Adapted from BusinessToday.in)

Categories: Economy & Finance, HR & Organization, Regulations & Legal, Strategy, Uncategorized