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Accounting for interest rate risk: Matching Fed assets to liabilities

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Abstract

The Fed has floating-rate liabilities as well as long-lived, zero-interest liabilities. A barbell of floating-rate and long-duration assets would best offset the interest rate risk from these liabilities. Investing in a more diversified mix of durations, while matching the average duration of assets, could be more practical than the barbell approach but would leave a substantial portion of interest rate risk unhedged.

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  • Hugo De Vere & Srini Ramaswamy & Sam Schulhofer-Wohl, 2025. "Accounting for interest rate risk: Matching Fed assets to liabilities," Dallas Fed Economics 101409, Federal Reserve Bank of Dallas.
    • Handle: RePEc:fip:d00001:101409
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