The Fed's Losing Money
The Federal Reserve owes Treasury $156 billion, but that’s OK. There is nothing to see here. Treasury will only run a fiscal deficit this year of $1.5-2.0 trillion which means the U.S. will have approximately $37 trillion of Treasury debt outstanding as of November 2024 (roughly 1.4x GDP).
The Fed ought to lower rates so that it does not continue to run large operating losses (paying out more interest on deposits than interest income it takes in). Simultaneously, the Fed should radically reduce its balance sheet (QT) by at least the same monthly amount ($120 billion) as its former QE program from 2020-May 2022. Doing so would cure inflation once and for all. Further, it would send a message to Congress, Treasury and the White House that the Fed will not continue to bail out Treasury auctions which fund Washington’s over-spending. As we have written previously, Powell needs to be Dr. No to Yellen’s spending.
