Is it necessary to pay the Federal Reserve when the bond it holds matures?

Hi,
Is it necessary to pay interest on the bond that the Fed holds? Suppose, in order to increase the money supply the Fed buys a bond of $1 billion in the open market. Now the bond is back to US government (The Federal Reserve). The US government (US Treasury) itself created the bond in first place. Hence I think it is not necessary to pay the interest/principal on that bond. Is this assumption correct?

Comments

  • Hi there vassy,

    As far as I'm aware the interest and prinicipal is paid back into the US Treasury, this is obviously a strange thing to consider but, through the issuance of federal notes and bonds by the Fed, the U.S. Government is essentailly it's own bank. The Treasury can then use this money for Goverment spending such as infrastructure etc.

    Regards,

    Anaximander
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