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Berkshire Hathaway Could See a Big Hit If the Fed Slashes Rates. Here’s How Much.

Sep 15, 2025 18:30:00 -0400 by Andrew Bary | #Warren Buffett

Berkshire’s A and B shares are up about 8% this year against a 14% total return for the S&P 500. (Michael M. Santiago/Getty Images)

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Berkshire Hathaway faces a reduction of more than $3 billion in its annual interest income if the Federal Reserve cuts rates aggressively over the next year given the company’s huge holdings of cash and equivalents, mostly U.S. Treasury bills.

The Fed is expected to cut its key rate by a quarter point on Wednesday from the current range of 4.25% to 4.50% and make a series of reductions through the end of next year that could leave short rates around 3% in late 2026.

Berkshire held $340 billion of cash and equivalents on June 30 at its insurance units and at the parent company, and that consisted mostly of some $244 billion of Treasury bills, which are short-term government obligations maturing within a year.

Berkshire’s cash pile has risen by about $70 billion since mid-2024 due to both earnings and by paring the size of the company’s equity portfolio. The company has paid out no cash to shareholders over the past year—no share repurchases or dividend.

Berkshire has the most cash of any U.S. nonbank company by a wide margin.

A one-point reduction in short rates should translate into a $3 billion-plus cut in annual interest income, assuming no changes in Berkshire’s cash holdings, Barron’s estimates. Adjusting for taxes, the hit could be around $2.5 billion. That’s more than 5% of the company’s after-tax operating profits, now running at nearly $45 billion annually.

The prospect of lower short rates may be weighing on Berkshire stock, which continues to languish as the S&P 500 hits new highs, including a record close for the index Monday.

Berkshire’s Class A stock was down 0.5% Monday to $736,469 while the B shares ended 0.6% lower at $491.54. The S&P 500 gained 0.5% Monday. Berkshire’s A and B shares are up about 8% this year against a 14% total return for the S&P 500.

Other factors that could be dampening Berkshire stock are an investor preference in recent months for more aggressive “risk-on” stocks such as technology. Berkshire is among the most defensive stocks in the market and the largest value issue in the Russell 1000 index. Many property and casualty insurance stocks have had lackluster performance this year and that may be hurting Berkshire as the owner of the world’s largest P&C business ranked by capital.

Berkshire already is experiencing the impact of lower short rates over the past year. The “interest and other investment income” at its insurance business—where most of its cash resides—was down 3% in the second quarter to $2.5 billion as lower rates offset higher cash balances, according to the second quarter 10-Q.

The prospect of lower rates is bolstering the stock market, and therefore Berkshire’s $300 billion equity portfolio, which is led by Apple at $66 billion (some 280 million shares), or just over 20% of the portfolio.

Berkshire CEO Warren Buffett believes in maintaining ample liquidity at Berkshire—although he has acknowledged its cash holdings are enormous and beyond what it needs. He was willing to hold a sizable amount of cash in 2020 and 2021 when short rates were near zero and when the company was earning virtually nothing on it.

Buffett has been unwilling to extend the maturity of Berkshire’s cash holdings to lock in higher rates. The company has virtually no bond portfolio. The bond holdings totaled $15 billion on June 30, and $11 billion of that total was cash-like with a maturity of a year or less.

Buffett essentially runs what pros would call a “barbell” portfolio consisting of roughly 50% stocks and 50% in cash. Buffett took a risk that short rates would fall, reducing Berkshire’s interest income, and he seems very comfortable about that decision.

Write to Andrew Bary at andrew.bary@barrons.com