The Federal Reserve, led by Jerome Powell, lowered rates to near zero in response to the economic downturn.
Photo:
Greg Nash / Bloomberg News
WASHINGTON – The Federal Reserve sent $ 88.5 billion in profits to the U.S. Department of the Treasury in 2020, an increase of nearly two-thirds from a year earlier as lower rates held down the central bank’s interest rate.
Fed payments to the Treasury had fallen over the previous four years as interest rates rose, raising the interest it paid on investments, or money held by private banks at regional reserve banks the Fed. The Fed also began shrinking its portfolio of assets, reducing its overall gross revenue.
In 2020, the Fed reduced rates to nearly zero as a result of the economic downturn caused by pandemic coronavirus infection, sharply reducing interest payments on too many bank assets.
Lower interest rates raised the Fed’s net income to $ 88.8 billion in 2020, from $ 55.5 billion in 2019, according to initial estimates of the central bank’s annual financial statement, released Monday.
The Fed must use its income to cover operating expenses and send much of the rest to the general funds of the Treasury, where it will be used to help cover government bills.
Fed payments to the Treasury, known as compensation, peaked in 2015 as a result of flat income from their large holdings.
A report on Monday showed that the operating costs of 12 Fed reserve banks rose to $ 4.5 billion in 2020, unchanged from the previous year.
Monday’s figures are preliminary and could change when the Fed’s audited financial statements are released in March.
Federal Reserve Chairman Jerome Powell at the end of August announced a major move on how the central bank sets interest rates. Greg Ip from WSJ explains the strategy behind the changes and what they mean for consumers. Photo: Erin Scott / Bloomberg (First published on 27 August 2020)
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