The Federal Reserve sent $80.6 billion to the Treasury in 2017, an amount that is less than last year’s payments because of rising interest payments made to banks, the central bank said Friday.
The Fed earned slightly more, $113.6 billion, on its $4.4 trillion bond portfolio. But remittances to the Treasury fell because it paid $26 billion to banks on their reserves held at the central bank, up nearly $14 billion from the year before.
The central bank pays interest rates on excess reserves that banks hold at the Fed as part of its mechanism for setting short-term interest rates across the economy. It got the authority to do so starting in 2008, as the financial crisis unfolded.
During 2017, it raised the rate paid on excess reserves from 0.5 percent to 1.25 percent as part of its broader campaign to move away from the zero-interest-rate policies of the recession. For most of the year, banks had $2 trillion to $2.2 trillion parked at the Fed.
Experts have long warned that the Fed runs the risk of inviting criticism from Congress by making large payments to banks. Payments could run into the hundreds of billions annually as the Fed raises interest rates over the coming years.
The central bank’s economists have projected that its income will drop in the years to come as its balance sheet slowly shrinks and interest payments to banks rise. Former Chairwoman Janet Yellen, though, downplayed the possibility that it could lose money.
It wouldn’t disrupt the Fed’s operations to lose money. But it could create a major headache for the Fed’s leadership in dealing with members of Congress skeptical of big banks.
Friday’s information comes from the Federal Reserve system’s audited financial statements. The audit was conducted by the firm KPMG.
