Oddly, we rarely focus on the actual banking function of the Fed.

The Fed acts like a bank by effectively earning a net interest spread on the difference in yield on the securities it owns when compared to the funding cost of deposits from depository institutions. During 2021, the Fed took in $122.5 billion in interest income, paid out $5.7 billion in interest expense, incurred $8.7 billion in expenses (mostly worthless economists who staff the Fed) and then sent most of the remaining profits to the US Treasury. As you can imagine, the Treasury appreciates the proceeds, which amounted to $107.4 billion in 2021, helping to make the budget deficit slightly less egregious.  2021 Federal Reserve Financials.

Why would the earnings revert to red? Let's use some very rough numbers. For those of you who follow the Fed more closely, just bear with me—I'm focused on concepts, not precision.