The Fed’s earnings

By Felix Salmon
January 12, 2010
Neil Irwin has worked out that the Federal Reserve earned $45 billion in 2009, thanks to the steep yield curve that it engineered and its move into higher-risk, higher return securities. This is good news: all that money is being dividended back to the public fisc, keeping the deficit that little bit lower.

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Neil Irwin has worked out that the Federal Reserve earned $45 billion in 2009, thanks to the steep yield curve that it engineered and its move into higher-risk, higher return securities. This is good news: all that money is being dividended back to the public fisc, keeping the deficit that little bit lower.

Essentially all that $45 billion was earned by one profit center, the New York Fed: the rest of the Federal Reserve system is basically cost centers. Now if the New York Fed was a commercial investment bank, it would pay half of that money out in bonuses. Let’s be conservative and call it $21 billion. The New York Fed has 3,000 employees, which means that the bonus pool would work out at $7 million per employee: a full order of magnitude greater than the equivalent number at Goldman Sachs.

Of course, making money is much easier when you can print the stuff. But it wasn’t at all obvious, at the beginning of 2009, that the Fed was going to have such a banner year. So let’s file this one — along with the lack of bonuses at the Fed — under “happy” for the time being. Yes, as Irwin points out, it’s still entirely possible that the Fed might end up taking substantial credit losses. But it’s becoming increasingly probable that any such losses will ultimately be more than made up for in higher coupon payments along the way.

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