One thing you can say for the Federal Reserve’s massive purchases of bonds over the last couple of years: at least they’ve made money.
While policy makers meeting Wednesday aren’t expected to expand their balance sheet any further, they are expected to say they’ll start shifting what maturity of bonds they hold towards longer-dated debt, generally by letting short-term notes 2_year mature and reinvesting them in longer-term ones. So still buying long-term Treasurys, with analysts estimating somewhere between $300 billion and $500 billion, according to CRT Capital Group.
Since the Fed’s first so-called quantitative easing purchase in March 2009, Treasurys of all maturities have returned about 13.1%, according to an index of compiled by Bank of American Merrill Lynch.
Any profits made by the Fed are turned over to the U.S. Treasury Department, so effectively returned to taxpayers.
“It won’t be an issue for the Fed to buy more as opposed to less than market expectations. If you consider what’s gone on since QE1 and QE2, the Fed’s portfolio may have exploded in size but also in value,” CRT’s David Ader and Ian Lyngen wrote in a note.
“That is to say, they’ve made a massive amount of money. Now no one judges the Fed’s success or ability to invest themselves, but we point out that they do have ‘profits’ for their efforts and not a lot of inflation of their making.”
