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Federal Reserve’s MBS Purchases Could Lead to Record Earnings of $70B
Posted By Carrie Bay On May 26, 2010 @ 6:36 pm In Government,Market Studies,Secondary Market | No Comments
Over the past several years, the nation has experienced its most severe financial crisis since the Great Depression of the 1930s. A ""report released this week"":http://www.cbo.gov/ftpdocs/115xx/doc11524/05-24-FederalReserve.pdf by the[IMAGE]
Congressional Budget Office (CBO) describes actions taken by policymakers to stabilize financial markets during the downturn as ""extraordinary.""
Through its efforts, the ""U.S. Federal Reserve"":http://www.federalreserve.gov more than doubled the size of its asset portfolio to over $2 trillion and assumed far more risk than is considered ""normal"" for the central bank, according to the CBO study. The majority of[COLUMN_BREAK]
these assets were mortgage-backed securities (MBS) purchased through a Federal Reserve program intended to keep mortgage rates low to stoke demand for the fragile housing market.
The risk-taking Fed is proving to be a savoir-faire investor. According to CBO estimates, the central bank's MBS investments and other crisis-mode assets will turn a record $70 billion profit for the Federal Reserve this year.
In 2009, the Federal Reserve earned $46 billion from interest yields on its assets. At that time, the windfall was the biggest annual return the Fed had recorded in its 95-year history.
The central bank earns interest income from its holdings of Treasury securities, loans to banks, and its holdings of housing debt, and according to the CBO, the FedÃ¢â‚¬â„¢s on track to see a lot more green as a result of its efforts to prop up the faltering housing market and the nationÃ¢â‚¬â„¢s financial system.
Ã¢â‚¬Å“The Federal ReserveÃ¢â‚¬â„¢s actions to stabilize the financial markets are likely to significantly increase the amount of its remittances [non-operating income that it turns over to the Treasury] over the next few years,Ã¢â‚¬Â the CBO wrote.
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