Fed Sent Lower Remittances to U.S. Treasury in 2018

01/10/19 12:15 PM EST
By Sarah Chaney 

WASHINGTON -- Federal Reserve payments to the U.S. Treasury declined in 2018 as the central bank's expenses rose along with short-term interest rates.

The Fed sent about $65.4 billion to the government last year, down 18.45% from the year before and 44.10% from a peak of $117 billion in 2015, according to preliminary estimates of the central bank's annual financial statements, released Thursday.

The Fed is legally required to use its revenue to cover operating expenses and send much of the rest to the Treasury Department's general fund, where it is used to help cover the government's bills.

The Fed payments to Treasury, called remittances, hit a record high in 2015 due to swelling interest income from its huge holdings of bonds purchased to help stimulate the economy after the financial crisis.

That interest income will decline as the Fed continues to shrink its portfolio of assets, or balance sheet, by letting a limited amount of bonds mature each quarter without replacing them.

Meantime, the Fed's expenses are rising as it raises short-term interest rates, including the rate it pays to banks on the money, called reserves, they park at the central bank.

The result is a declining amount of extra money to turn over to the Treasury.

The Fed's net income totaled $63.1 billion in 2018, a 21.81% decline from 2017, the central bank said.

The Fed doesn't make monetary-policy decisions based on its projected profits or losses, but remittances to the Treasury grew substantially as a result of its postcrisis policies aimed at supporting the economy through the recession and fitful recovery.

The balance sheet grew rapidly due to a series of Fed bond-buying programs launched to lower long-term interest rates in hopes of encouraging businesses and consumers to borrow and spend more, lending support to the economy.

The Fed lowered short-term interest rates to near zero in 2008 during the crisis and held them there for seven years.

After the economy improved significantly, Fed officials began raising rates in December 2015 with a quarter-percentage-point increase in its benchmark rate. They lifted rates by similar increments once in 2016, three times in 2017 and four times in 2018, withdrawing stimulus to prevent the strengthening expansion from fueling asset bubbles or excessive inflation.

In the fall of 2017, officials began the process of shrinking the Fed's balance sheet as well.

If the Fed continues to raise rates and trim its bond holdings, its payments to Treasury will likely continue to decline.

Fed officials at their December meeting raised rates but generally believed they could be close to ending their recent series of rate increases, according to minutes of the meeting released Wednesday.

Officials also discussed different options for managing the balance sheet runoff.

Thursday's report showed the 12 Fed reserve banks' operating expenses totaled $4.3 billion last year. The banks also were assessed $838 million for Fed board spending and $337 million to fund the Consumer Financial Protection Bureau.

The Fed said the figures released Thursday are preliminary and could be adjusted when its audited financial statements are released in March.

Write to Sarah Chaney at sarah.chaney@wsj.com

 

(END) Dow Jones Newswires

January 10, 2019 12:15 ET (17:15 GMT)

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