Billionaire investor Warren Buffett compared the US Federal Reserve to a hedge fund because of the central bank’s ability to profit from bond purchases, while accumulating a balance sheet of more than US$3 trillion.
“The Fed is the greatest hedge fund in history,” Buffett told students on Thursday at Georgetown University in Washington.
It is generating “US$80 billion or US$90 billion a year probably” in revenue for the US government, he said. “And that wasn’t the case a few years back.”
The central bank has been buying US$85 billion of bonds a month to help the US recover as it emerges from the deepest economic slump since the Great Depression. Fed Chairman Ben Bernanke and other Fed policymakers unexpectedly opted this week to sustain that pace of asset purchases instead of tapering it, saying they need to see more signs of lasting improvement in the economy.
The Fed “is under no pressure, none whatsoever to have to deleverage,” Buffett said. “So it can pick its time and if you have somebody wise there — and I think Bernanke is wise and I certainly expect his successor to be — it can be handled. But it is something that’s never quite been done on this scale. It will be interesting to watch.”
Bernanke steered the Fed through the 2008 crisis, and his term ends in January next year. Fed Vice Chairman Janet Yellen is a leading candidate to replace Bernanke after former US treasury secretary Lawrence Summers withdrew his name from consideration.