The Federal Reserve returned less money to the US Treasury in 2022 due to rising interest rates, according to an audited financial statement.
Last year, the Fed returned $76 billion to the Treasury, down from $109 billion the year before, according to a document that updated figures first released in January.
The Fed is required by law to return profits to the Treasury after covering its operating expenses. Over the past year, the central bank has aggressively raised its overnight benchmark interest rate, resulting in a significant increase in the interest it pays banks, money market funds, and others to retain cash at the central bank.
The Fed’s largest source of revenue is interest income from bonds it possesses. During the coronavirus pandemic, the Fed aggressively purchased Treasury bonds and mortgage-backed securities to support the economy and financial system, and the income it earned from these securities at a time when its policy rate was close to zero allowed Fed profits to increase.
In March of last year, however, the central bank began to increase interest rates in an effort to curb inflation. Soon after, it began to reduce the size of its holdings, generating a vicious cycle that eroded its earnings.
In its statement, the Fed reported that the interest it paid to deposit-taking banks via its interest on reserve balances tool reached $60.4 billion last year, an increase of $55.1 billion from 2021, and that interest paid via the reverse repo facility reached $42.0 billion, an increase of $41.6 billion from 2021.
In addition, the Fed reported that it earned $170 billion in interest income from the bonds it owned in 2022, up from $122.4 billion in 2021.