SAN FRANCISCO, March 24 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
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)