President Donald Trump won’t inherit the same windfall that the Federal Reserve handed the Obama administration each year, and his budget shows he knows it.
The Fed is lifting interest rates and plans to start shrinking its $4.5 trillion balance sheet later this year, two policies that will be a drag on the U.S. federal budget. Higher rates mean that America has to pay more to borrow, and the combination of more elevated rates and a smaller balance sheet will leave the Fed with lower excess earnings, which it pays back to the Treasury.
The double whammy is reflected in the president’s proposed budget and projections, released this week. Trump’s administration sees Fed remittances falling from $116 billion in fiscal year 2016 to a low of $50 billion in 2020 before rebounding. Given the administration’s proposals, the budget also projects that net interest outlays will climb from $240 billion last