FED
The Federal Reserve posted positive net earnings in the week to Feb 5, the first time it has done so since September 2022. The $0.4B uptick compares with an average of negative $1.3B over the preceding 6 months.
- Technically, this was a less negative "deferred asset". When the Fed "earns" money on its asset holdings after netting out expenses, it remits this money to the Treasury. With the Fed posting negative earnings for the past 2+ years, it is falling in to deeper and deeper cumulative negative earnings, a "deferred asset" which means that until the figure goes back into a positive balance, no remittances are made to Treasury.
- The "deferred asset" is currently $220.8B.
- The variability of earnings is due to the relationship between rates paid on Fed liabilities versus those paid on its assets.
- The post-GFC rise in the balance sheet saw ZIRP policy and a large set of Treasury and MBS holdings, meaning Fed remittances to the Treasury rose from 0.2% of GDP and 1.3% of government receipts in 2007 to 0.6% and 3.4%, respectively, in 2015, per St Louis Fed calculations. The 2015-18 tightening cycle saw a pullback in remittances, with about $900B remitted to the Treasury over the course of the 2011-20 period.
- The pandemic balance sheet expansion and return to ZIRP saw remittances pick up strongly again, but they have since pulled back. The 52-week average of weekly remittances has shifted, from showing about $10B in monthly "losses" in late 2023/early 2024, to around $6B on a monthly basis now.
- This reflects first the inversion of the yield curve amid the Fed's tightening cycle, and the slow normalizing of the curve since then.
- Unless the Fed easing goes much further, the Fed is unlikely to transmit cash to Treasury for some time.
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