Aaron P. Bernstein | Reuters
Jerome Powell looks on after a swearing-in ceremony February 5, 2018 at the Federal Reserve in Washington, DC.
Congress, in need of revenue to help offset completely new spending, is actually raiding the Federal Reserve’s piggy bank.
The maneuver was tucked inside the sprawling budget deal of which lawmakers passed early Friday, hours after the government’s funding authority ran out. of which lowers the limits on “surplus funding” at the Federal Reserve to $7.5 billion coming from $10 billion, one modest way to offset the estimated $320 billion increase in federal spending.
The move came during an already tumultuous week for the Fed. completely new Chairman Jerome Powell was sworn in Monday morning, taking over coming from Janet Yellen within the midst of a newly volatile stock market as well as also concerns about rising interest rates.
of which is actually not initially of which Congress has turned to the central bank for revenue. In 2015, lawmakers took $29.3 billion coming from the Fed’s surplus account — as well as also capped of which going forward — to help pay for a sweeping $305 billion infrastructure package. Under the completely new provision within the budget deal, the benefit to the bottom line is actually much smaller. The Congressional Budget Office estimates of which will only raise $1.7 billion over the next decade.
Analysts deride the move as little more than an accounting gimmick. The Fed already returns the interest earned on its portfolio of holdings to the Treasury Department. of which payment was worth $80 billion last year alone. The Fed’s surplus account provides a capital buffer in years when the central bank suffers losses, nevertheless ultimately, the money belongs to Uncle Sam anyway.
“Legislators who care about the integrity of the budgeting process should not support of which budgetary sleight-of-hand,” former Fed Chairman Ben Bernanke wrote in a 2015 blog post.
The move two years ago also created a dangerous precedent, said Sarah Binder, a senior fellow at the Brookings Institution who studies the relationship between Congress as well as also the central bank. of which Congress would likely return to the trough for the completely new budget deal underscores the Fed’s political vulnerability.
“Congress treating the Fed like a cash cow is actually Exhibit A within the myth of Fed independence. A decade of criticism coming from the Hill has weakened the Fed’s political standing — doing of which easy prey for politicians who want to claim they’ve paid for completely new spending,” Binder said. “If the Fed’s public standing were stronger, lawmakers might have second thoughts about raiding the Fed’s rainy day funds.”