By Michael S. Derby
NEW YORK (Reuters) – The Federal Reserve said on Friday it returned substantially less money to the U.S. Treasury last year than the year before, amid rising interest expenses linked to its work to curb inflation.
The Fed said in a statement that its net income last year was a preliminary $58.4 billion, compared with $107.9 billion for 2021. The US central bank noted that in September last year it began to record what is called a deferred asset that accounts for the loss, which was $18.8 billion at the end of the year.
The Fed said it transferred $76 billion in weekly earnings to the Treasury. The deferred asset accounting measure records the loss and will be covered in the future when the central bank returns to profitability.
By law, the Fed returns any excess earnings to the Treasury after covering its expenses. The central bank makes money from the interest on the bonds it owns and from the services it provides to the financial sector.
The Fed reiterated in its statement that the net negative situation in which it now operates does not jeopardize its ability to pursue its monetary policy objectives.
The turn to technical losses for the Fed is driven by the central bank’s aggressive campaign to raise borrowing costs last year, which raised its rate target from near-zero levels to between 4.25% and 4.5% at the end of the year. This has dramatically increased the amount of interest expense faced by the central bank over the past year.
In 2022, the Fed says interest expenditure rose to $102.4 billion last year from $5.7 billion in 2021.
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