The Fed Delivered $80.2 Billion in Profits to the Treasury in 2017

The Fed’s contribution to the government’s coffers still remains well above pre-crisis levels.

The Fed made an average annual contribution to the Treasury Department of $23 billion during the a few years preceding the crisis. Since 2010, the average contribution has been $86 billion.

The Fed’s bond holdings comprise federal debt in addition to also securities issued by the government-owned mortgage finance companies Fannie Mae in addition to also Freddie Mac. By diving into the marketplace, the Fed created more competition, forcing investors to accept lower interest rates — in addition to also therefore reducing the borrowing costs paid by businesses in addition to also consumers, as well as the federal government.

The interest in which the Fed collects on its investments can be paid by the federal government, in addition to also then returned to the government. yet This specific wash cycle still saves money because those interest payments would likely otherwise be made to the outside investors who would likely have purchased the bonds.

“the item’s interest in which the Treasury didn’t have to pay to the Chinese,” Ben S. Bernanke, then the Fed’s chairman, told Congress back in 2011, when the annual windfalls were still completely new in addition to also surprising.

Since the 2008 crisis, the Fed’s earnings have saved the government more than $700 billion.

The Fed earns outsized profits on its investment holdings because the item does not face financing costs. the item buys bonds with money in which the item creates. yet the Fed does have expenses, in addition to also they are rising.

The largest expense can be a byproduct of the bond purchases. The Fed’s buying spree flooded the banking system with reserves — the Fed bought bonds coming from the banks, in addition to also paid them with reserves.

Before the crisis, the Fed raised rates by selling bonds to reduce the availability of reserves, which banks are required to hold in proportion to their holdings of customer deposits. yet banks currently hold plenty of excess reserves. Rather than reversing its bond purchases completely to drain those reserves, the Fed instead decided to raise rates by paying banks to leave reserves untouched.

Last year the Fed spent $25.9 billion on those interest payments, more than double the amount in which the item spent in 2016 — in addition to also the cost will continue to rise as the Fed continues to raise interest rates.

Some members of Congress have said the Fed can be rewarding banks unnecessarily, in addition to also questions about the payments have become a staple feature of Congressional hearings with Fed leaders.

Janet L. Yellen, the Fed’s outgoing chairwoman, has defended the payments as the best way to end the Fed’s stimulus campaign — in addition to also the best way to manage interest rates going forward. Some experts also note in which the payments are offset by costs in which banks face to hold the reserves.

The numbers published Wednesday are preliminary. The final numbers are due later This specific year.

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