Fed's Income Shortfall Puts Pressure On Treasury As Interest Expenses Soar To $1 Trillion
Portfolio Pulse from Piero Cingari
The Federal Reserve is expected to operate at a loss for the foreseeable future, impacting its historical practice of transferring excess earnings to the U.S. Treasury. Due to aggressive monetary policy, including rate hikes and quantitative tightening, the Fed's interest expenses on liabilities have increased, while interest income from assets adjusts more slowly. This has resulted in a 'deferred asset' or loss. The iShares 20+ Year Treasury Bond ETF (TLT) has seen a decrease in value over the past three years. The Fed may not resume profit sharing with the Treasury until around mid-2027, while the Treasury's interest expenses are set to exceed $1 trillion in 2023.
November 28, 2023 | 5:17 pm
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NEGATIVE IMPACT
The iShares 20+ Year Treasury Bond ETF (TLT) has experienced a decline in value for three consecutive years due to rising yields on U.S. Treasury bonds, a key asset in the Fed's balance sheet. The ETF's value dropped by 6% in 2021, 33% in 2022, and 8% so far this year.
The article directly mentions TLT's decline in value, which is attributed to the Fed's aggressive monetary policy and rising Treasury yields. This negative trend is likely to continue in the short term as the Fed's policy stance remains tight, which could further pressure TLT's price.
CONFIDENCE 85
IMPORTANCE 70
RELEVANCE 80