It’s Clear That The Fed Is Starting To Prepare For A Future PR Nightmare
Mar 4 2013
Everyone wants the Federal Reserve to tell them how the central bank expects to unwind the $3 trillion balance sheet its amassed from quantitative easing in recent years when the time is right.
Indeed, this was something of a hot topic in Fed Chairman Ben Bernanke’s testimony before Congress last week.
One of the big issues the central bank faces is the inevitable loss it will have to take when interest rates rise and the value of the Fed’s bond portfolio declines.
This doesn’t really pose an economic issue (as “losses” for a central bank are pretty meaningless), but one casualty of those losses will be the regular payment that the Fed makes to the Treasury from the interest income it receives on its bond portfolio. Every year the Fed pays a nice check to the Treasury, sending its profits over to Uncle Sam.
Deutsche Bank strategist Stephen Abrahams recently explained why this could be such a P.R. nightmare for the Federal Reserve, which is not exactly the most cherished institution in the hearts of the American public: