- REUTERS/Kevin Lamarque
- The Federal Reserve last year paid the US Treasury its smallest sum in a decade, doling out $54.9 billion throughout 2019.
- The central bank faced income pressures from declining interest income and surging expenses, according to a Friday statement.
- The Fed’s market repurchase agreement, or repo, operations drove costs higher through the second half of the year as the bank added billions of dollars to the US financial system.
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The Federal Reserve paid the US Treasury its smallest sum in a decade in 2019 as the central bank faced higher operating costs and income fell through the year.
The Fed paid roughly $54.9 to the government last year, compared to $65.8 billion in 2018, according to preliminary estimates released Friday. The central bank’s net income for the year reached $55.5 billion, down $7.6 billion from 2018.
The Fed’s market repurchase agreement, or repo, operations drove expenses higher through the second half of the year. The central bank added billions of dollars to the US financial system through repos and Treasury-bill repurchases after its key lending rate spiked on September 17. The rate spike prompted economists to fear the Fed lost control of its lending rate.
- Federal Reserve
The scheduled repo offerings generally held the rate in its intended window, but a standing repo facility would be more efficient for the banking system, former New York Fed chair William Dudley said in a Monday Bloomberg Opinion column. A funding pool would effectively replace the Fed’s capital injections and allow lenders to convert securities into cash reserves whenever they see fit.
“The spike in the fall was not a ‘canary in the coal mine’ signaling bigger problems in the financial system,” Dudley wrote. “Instead, it reflects the difficulty in forecasting the demand for reserves given the changes in regulations.”
The central bank’s payments to the government peaked in 2015, pushed higher as its large bondholdings yielded massive interest income. Congress also called on the Fed to fund nearly $20 billion for a federal transportation bill, padding an already-large yearly payment to the US Treasury.
The Fed’s income fell through 2019 as it cut down on its bond holdings. The central bank purchased a slew of bonds to help pull the US economy out of the Great Recession.
Operating expenses for the 12 Fed banks totaled $4.5 billion in 2019.
Final results are scheduled for release in March, the bank said.
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