Economy

Fed bond purchases sent nearly $80 billion Treasury’s way in 2013

 

McClatchy Washington Bureau

The Federal Reserve’s controversial bond-buying program,

designed to stimulate the U.S. economy, generated interest income of $90 billion in 2013, an audit of the central bank confirmed Friday.

The Fed released an annual audit of its financial operations for 2013,

conducted by the giant accounting firm Deloitte & Touche LLP. The documents show that the massive purchases of government and mortgage bonds – an effort known as quantitative easing – generated almost $10 billion more than the prior year.

Senior Fed officials, speaking on condition of anonymity as a matter of

policy, said that after subtracting out operating expenses of $6.1 billion and almost $5 billion on interest expenses paid on deposits held at Fed banks, the Fed remitted to the Treasury just under $80 billion.

That’s enough to fund the Departments of Justice, Interior, Energy and

Commerce for all of next year in President Barack Obama’s recently released proposed budget.

During 2013, the Fed purchased every month $85 billion in government

and mortgage bonds in a bid to keep longer-term interest rates at historic lows and spur risk-taking in financial markets. The effort was designed to help revive the moribund housing sector and to force investors into stocks and commodities. Both moves sought to boost household wealth and economic activity.

The stock market responded by going on a tear in 2013, but it has

struggled to find its footing of late after the Fed began tapering back its purchases of bonds. It did so in January and February, each month cutting back the purchases by $10 billion to a current rate of $65 billion a month.

The policy-making Federal Open Market Committee meets Tuesday and

Wednesday, and new Fed chief Janet Yellen holds her first news conference Wednesday. She’s expected to announce further slowing in the pace of purchases.

Quantitative easing is controversial because it distorts the

free-market pricing of financial assets, changing the relative attractiveness of, say, stocks over bonds. As the Fed has started to pull back, many international investors also have been simultaneously pulling back on investments in Brazil and other large developing economies, willing to settle for smaller but less risky returns at home.

The Fed’s total assets as of Dec. 31 were $4 trillion, a full $1.1

trillion higher than at the close of 2012. This is one reason why some critics of the Fed fear that eventually the bond purchases will result in higher inflation. There'll be so much credit available for lending, the theory goes, that the economy will heat up faster than the Fed raises interest rates to slow inflation.

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