The Fed is actually making a few bucks off this recession – at least on its balance sheet. It’s mostly from the interest income it is earning by buying all those instruments (low-return Treasuries, from open-market operations, and high-return “toxic” assets from banks). Let’s hope it doesn’t spend it all in one place…

Last year the central bank reported a whopping $43 billion in operating income. That was more or less the same level as in 2007, but meanwhile short-term interest rates had plummeted, ending the year near zero. That should have clobbered Fed income, as rate cuts did in the early days of the last recovery in 2002-04 (see chart).

But it did not, for two reasons. First, to shore up financial markets the Fed has pumped up its balance-sheet—its total assets were $2.2 trillion on December 31st, more than double their level of a year earlier. Second, it has been trading in low-risk, low-return Treasury debt and buying higher-yielding private debt—discount loans to banks, commercial paper, and mortgage-backed securities, for example. [link]