"Because it raises key interest rates, the American Federal Reserve also has to pay more interest and is making operating losses. Now of all times, the US government has to forego transfers from the Fed.
The American central bank Federal Reserve has generated operating losses of $100 billion since September 2022. This is evident from the Fed's recently published balance sheet. For a year now, the interest paid by the central bank on reserves (and reverse repo) has exceeded the interest earned on the bonds it accumulated as part of quantitative easing.
With the key interest rate increases, the interest that the Federal Reserve pays on the reserves increased, while interest income shrank because the central bank no longer replaces its maturing bonds. With this monetary policy of quantitative tightening, the Fed wants to curb inflation. If the central bank raises key interest rates in its two-day meeting that ends this Wednesday, it will increase the expected loss even further.
For the central bank, the loss is not a problem because of its ability to create money. The loss also has no impact on monetary policy. However, the minus can be seen in a balance sheet item in which the income that is intended to be transferred to the public budget of the American federal government is recorded. This prefigures the problem: Because of the loss, the US government will lose a bubbling source of income for many years.
In 2022, the central bank had transferred $76 billion to the public budget. Since 2001, it has given the Treasury Department a total of $1.36 trillion, calculates Fed watcher Wolf Richter. This source remains dry. Because even if the Federal Reserve's interest income were to become positive again in a few years, the income must first be used to offset the accumulated loss before transfers to the federal budget can be made again.
The explosiveness of the situation was made clear in the most recent budget projection by congressional auditors: They now expect the government to run a deficit of $1.7 trillion this fiscal year (through the end of September). That's $200 billion more than what was calculated in February. Higher expenses and lower income are the reason. Payroll and social security taxes were lower. But as an important factor, the auditors also note that the Federal Reserve's transfers are shrinking to less than a billion dollars, from 99 billion dollars.
Because of the dispute over spending and revenue, Congress has not yet approved a new budget for the new fiscal year that begins on October 1st. A handful of Republican congressmen are demanding steep cuts and threatening a so-called shutdown: That is, all public services that are not considered essential and the pay of public servants who are not considered essential would be stopped.
The Republican leadership is trying to prevent such a scenario with a plan to secure government funding at least through October. But right-wing Republicans are already expressing strong resistance to it. They are demanding deep cuts in payouts, which the Democrats are unwilling to accept." [1]
1. Die Fed schreibt tiefrote Zahlen: Die US-Regierung verliert eine sprudelnde Einkommensquelle in einer kritischen Phase. Frankfurter Allgemeine Zeitung (online)Frankfurter Allgemeine Zeitung GmbH. Sep 20, 2023. Von Winand von Petersdorff, Washington
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