Federal Reserve Vice Chairman Janet Yellen said the central bank’s balance sheet may incur losses that would wipe out the Fed’s remittances to the U.S. Treasury.
“There is a chance that we could go through a period of time in which our income falls, and we could even take losses,” Yellen said in response to audience questions after a speech in Washington. “We’ve been paying enormous sums to the Treasury” from income on the Fed’s holdings, and “it is possible” that there will be “a period of a year, or even several years, in which those remittances fall to zero.”
The central bank’s balance sheet, which has ballooned to a record of more than $3 trillion through three asset-purchase programs, has provided unprecedented windfalls to the U.S. Treasury. The Fed uses interest income from its bond holdings to cover its own expenses and sends the rest to the Treasury. In 2012, that dividend to taxpayers was $88.9 billion.
Yellen said that the Fed’s policies are helpful to the nation’s finances by creating jobs and lowering long-term interest rates.
“This is a policy that is not only good for output and the economy, but also for the federal finances overall,” she said.
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