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Fed unlikely to have significant losses as rates rise: paper
[March 24, 2014]
SAN FRANCISCO (Reuters) —
The Federal Reserve, whose balance sheet has swollen to
more than $4 trillion as the U.S. central bank has
worked to push down borrowing costs and boost the
economy, probably will not sustain big losses once
interest rates start rising, according to research from
the San Francisco Fed. There is only a 5 percent chance that the price of the Treasuries held by the Fed will fall below their face value in 2015 and result in capital losses for the central bank, according to the study by the regional Fed bank's head of research, Glenn Rudebusch, and two colleagues. |
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There is also only a 5 percent chance that
rising rates would result in the Fed paying out more in interest
to banks as part of its eventual monetary tightening than it
earns in fixed payments on its securities, the researchers
found. "Our analysis shows that the likelihood of significant losses on
the Fed's Treasury portfolio or a long cessation of Treasury
remittances is very low," they wrote. The research is aimed at addressing rising concern within the
central bank that the Fed could face political pressure if
capital losses or a rise in interest payments force it to reduce
or eliminate the tens of billions of dollars in profits it sends
to the Treasury each year. (Reporting by Ann Saphir; editing by Leslie Adler) [© 2014 Thomson Reuters. All rights reserved.] Copyright 2014 Reuters. All rights reserved. This material may not be published,
broadcast, rewritten or redistributed.
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