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The Federal Reserve sent $88.5 billion in profits to the U.S. Treasury Department in 2020, a nearly two-thirds increase from the previous year as lower rates held down the central bank's interest expense.
The Fed's payments to the Treasury had fallen over the previous four years as interest rates rose, boosting the interest it paid on reserves, or money that private banks keep at the Fed's regional reserve banks. The Fed also began shrinking its portfolio of assets, reducing its overall net income.
What's the difference between US Treasury and Federal Reserve?
The U.S. Treasury is best known for printing money (literally) and offering economic advice to the President.
The Federal Reserve is the U.S. central bank, ensuring lenders and borrowers have access to credit and loans.
The two work together to provide a stable U.S. economy and borrow money when the government needs to raise cash.
Where does $88.5 billion come from?
In 2020, the Fed lowered rates to near zero in response to the economic downturn wrought by the coronavirus pandemic, sharply reducing interest payments on banks' excess reserves.
Lower interest expense boosted the Fed's net income to $88.8 billion in 2020, from $55.5 billion in 2019, according to preliminary estimates of the central bank’s annual financial statement, released Monday.
The Fed is required to use its revenue to cover operating expenses and send much of the rest to the Treasury's general fund, where it is used to help cover the government's bills.
Major relationship
The Federal Reserve is a nonprofit company. After its expenses are paid, any remaining profits are paid to the Department of the Treasury. The Department of the Treasury then uses that money to fund government spending.
The two are instrumental in fighting recessions and bailing out institutions when necessary.
Source: WSJ, Investopedia
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