Fed unlikely to have significant losses as rates rise: paper

SAN FRANCISCO Mon Mar 24, 2014 2:13pm EDT

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013. REUTERS/Jonathan Ernst

An eagle tops the U.S. Federal Reserve building's facade in Washington, July 31, 2013.

Credit: Reuters/Jonathan Ernst

SAN FRANCISCO (Reuters) - The Federal Reserve, whose balance sheet has swollen to more than $4 trillion as the U.S. central bank has worked to push down borrowing costs and boost the economy, probably will not sustain big losses once interest rates start rising, according to research from the San Francisco Fed.

There is only a 5 percent chance that the price of the Treasuries held by the Fed will fall below their face value in 2015 and result in capital losses for the central bank, according to the study by the regional Fed bank's head of research, Glenn Rudebusch, and two colleagues.

There is also only a 5 percent chance that rising rates would result in the Fed paying out more in interest to banks as part of its eventual monetary tightening than it earns in fixed payments on its securities, the researchers found.

"Our analysis shows that the likelihood of significant losses on the Fed's Treasury portfolio or a long cessation of Treasury remittances is very low," they wrote.

The research is aimed at addressing rising concern within the central bank that the Fed could face political pressure if capital losses or a rise in interest payments force it to reduce or eliminate the tens of billions of dollars in profits it sends to the Treasury each year.

(Reporting by Ann Saphir; Editing by Leslie Adler)

A couple walks along the rough surf during sunset at Oahu's North Shore, December 26, 2013. REUTERS/Kevin Lamarque

Find your dream retirement town

Florida? Hawaii? Reuters has teamed up with Zillow to give you the power to customize a list of your best places to retire.  Video | Full Article 

Recommended Newsletters

Reuters U.S. Top News
A quick-fix on the day's news published with Reuters videos and award-winning news photography and delivered at your choice of one of four times during the day.
Reuters Deals Today
The latest Reuters articles on M&A, IPOs, private equity, hedge funds and regulatory updates delivered to your inbox each day.
Reuters Technology Report
Your daily briefing on the latest tech developments from around the world from Reuters expert tech correspondents.