Billionaire investor Warren Buffett this week compared the U.S. 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 $3 trillion.
“The Fed is the greatest hedge fund in history,” Buffett told students at Georgetown University in Washington. It’s generating “$80 billion or $90 billion a year probably” in revenue for the U.S. government, he said. “And that wasn’t the case a few years back.”
The central bank has been buying $85 billion of bonds a month to help the U.S. recover from the deepest slump since the Great Depression. Chairman Ben Bernanke and other Fed policy makers opted this week to sustain that pace of asset purchases instead of tapering it, saying they need to see more signs of improvement in the economy.
The Fed remitted $88.4 billion to the U.S. Treasury Department last year. 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’s term ends in January, and Fed Vice Chairman Janet Yellen is said to be a likely choice to replace him.
Buffett stopped short of endorsing Yellen to take over as Fed chairman, during an interview on CNBC prior to the Georgetown event. He said his top pick for the job is Bernanke, even though he may not want to stay.
“If you’ve got a .400 hitter in the lineup, you don’t take him out,” Buffett said, referring to a high batting average in baseball. “I don’t have a second choice. I don’t know Janet Yellen at all.”