Federal Reserve Posts Record Surplus in 2009

By:
Peter King | January 12, 2010

The Federal Reserve’s interventions this past year did more than goose the economy and send mortgage interest rates to record lows – the generated a tidy profit for the government as well.

The Fed will realize a profit of approximately $46 billion for 2009, primarily on bond purchases designed to push down interest rates on mortgages and other lending, according information released today. The surplus will be returned to the U.S. Treasury.
 
If accurate, that would make 2009 the most profitable year in the Fed’s history. The Fed is intended to be self-funding, returning surplus monies to the Treasury each year, although it is not intended to be a profit-making operation. The most profitable year previously was 2007, when the Fed returned $34.6 billion to the Treasury.
 
Most of the 2009 surplus was the result of the Fed’s bond-purchase program, announced in March, which triggered a sharp decline in mortgage interest rates and a frenzy in refinancing activity. The Fed ended the year holding $1.8 trillion in U.S. government debt and mortgage-related securities, up from $500 billion the previous year.
 
Other profits came from emergency loans to banks and other financial firms, and special programs designed to prop up various types of consumer and business lending, such as credit cards and auto loans, according to an analysis by the Washington Post. These programs charge interest rates and fees to ensure the Fed does not lose money.
 
A $3.8 billion loss in loans made to bail out investment bank Bear Sterns and insurer AIG were more than counterbalanced by $4.7 billion in interest on those loans, according to the Post’s analysis.
 
Although the Fed is designed to be self-funding, its policies are supposed to be designed to benefit the overall economy, rather than generate profit. Its primary function is regulating the money supply to support economic growth and employment while keeping inflation under control.
 
While its extensive purchases of Treasury bonds and mortgage securities have generated considerable profits this past year, the Fed could end up losing money on them down the road if inflation kicks in and it has to sell them off at reduced prices to shrink the money supply.

More Rates Articles

Call For Rates

800-419-1494

Speak to a lender now.

We will match calls to our toll free number with our network of lenders.

See Today's Rates

National Rates

Loan Type Today +/-
30 yr fixed 3.69
15 yr fixed 3.00
5/1 ARM 2.69

Rates may contain points

Compare Rates »

Browse Mortgage Rates

Rates Calculators