Well at least someone is making money these days. The Associated Press reports that the Federal Reserve made $52.1 billion for the fiscal year of 2009 (sorry conspiracy theorists, it returned $46.1 billion to the Treasury), which is $14.4 billion more than 2008. These profits come from interest on securities the Fed purchased in programs designed to rescue the economy (not including the $700 billion bailout), such as:

“…[in] one program that ended last year, the Fed snapped up $300 billion in government debt. Under another program, the Fed is on track to buy a total of $1.25 trillion in mortgage securities from Fannie Mae and Freddie Mac by the end of March. It also will wrap up purchases of $175 billion in debt issued by the mortgage giants at that time. Those programs have boosted the value of securities held by the Fed.

The Fed has certainly taken unprecedented action, much of which I have been quite critical of. And the way I see it, the Fed faces a double edged sword right now. As the article states:

“The Fed faces a risk, however. It could lose money if it had to sell those securities after their prices had fallen. The Fed might need to sell the securities to sop up some of the money it pumped into the economy during the crisis.”

The question in my mind isn’t whether the Fed loses money, though. The problem the Fed faces is can it take enough money out of the economy without sending us back into a severe recession, or will the excess money lead to high inflation. Personally, I’m predicting some pretty vicious stagflation is coming our way. We’ll see…