Fed profits

http://www.federalreserve.gov/newsevents/press/other/other20100110a1.pdf
Listed in billions:
2001 27.1 2002 24.5 2003 22.0 2004 18.1 2005 21.5 2006 29.1
2007 43.6 2008 31.7 2009 45.4 2010 78.4

If the Fed is marking both trading gains and interest income, then these are real profits, money taken out of the economy by Fed operations.

Ritholtz claims:

For those who choose to read no further, the bottom line is that, from the taxpayer’s perspective, the government (Treasury) is paying interest to itself (the Fed). The Fed takes out its operating expenses that are now growing because of the interest the Fed is paying on excess reserves. The remainder is returned to the Treasury. In the process, under current government accounting conventions, an expense is magically converted into revenue.

Not really, the government is competing with the private sector, via its wholly owned bank, profits that would go to a private bank otherwise. There is every reason to believe that government could gain or lose cash in the exchange, especially during turbulent times. If the economy discovers growth somewhere besides government debt, then the Fed and government could lose a ton of money, a hyperinflationary amount of money.

What is the affect on inflation or deflation? When government uses its own bank, it gains more resources for itself, at the expense of other sectors just what Keynesians expect. Price hikes occur in government business, and prices drop in other sectors.