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The Federal Reserve had another good investment year, making $76.9 billion in profits off of treasury bonds and mortgage-backed securities and the like. But the Wall Street Journal 's Jon Hilsenrath says not to get too excited. While the Fed was able to turn over that tidy profit to the US Treasury this year, there is still quite a bit of risk in its portfolio.

The Federal Open Market Committee has wrapped up its two day November meeting, and it appears there are no significant changes to monetary policy coming in the near future. The Fed will keep the federal funds target rate at 0 to 1/4 percent, as the committee anticipates recovery will continue at a slow pace. From the release: The Committee continues to expect a moderate pace of economic growth over coming quarters and consequently anticipates that the unemployment rate will decline only gradually toward levels that the Committee judges to be consistent with its dual mandate. Moreover, there are significant downside risks to the economic outlook, including strains in global financial markets. The Committee also anticipates that inflation will settle, over coming quarters, at levels at or below those consistent with the Committee's dual mandate as the effects of past energy and other commodity price increases dissipate further. Here's a look at the Fed's current projections for GDP and jobs: Read the full release here , and watch Fed Chair Ben Bernanke's press conference from the FOMC meeting below:

Calling the Fed's latest maneuvering, dubbed operation twist , extreme policy might seem a little, well, extreme. But that is exactly what the folks at Central Bank News have done in adding it to the list of the most extreme policy moves of 2011. Here's the list: 1. Belarus Financial Crisis 2. The Twist 3. Swiss Franc Floor 4. ECB SMP and the Confidence Crisis 5. Bank of Japan Earthquake Response 6. Vietnamese Hyperinflation 7. Brazilian Rate Reversal 8. Kiwi Earthquake Insurance 9. Joint Liquidity Operations 10. 'Chindia' Tightening For details of each of the policy moves listed above, read Top 10 Most Extreme Monetary Policy Moves of 2011 here .

In a New York Times op-ed, Paul Volcker expresses some concern that members of the Federal Reserv's Open Market Committee are starting to find the prospects of "a little inflation" tempting. The thinking that concerns Volcker is that 4 or 5% inflation might have a stimulating effect for the economy. Not so, says Volcker: My point is not that we are on the edge today of serious inflation, which is unlikely if the Fed remains vigilant. Rather, the danger is that if, in desperation, we turn to deliberately seeking inflation to solve real problems — our economic imbalances, sluggish productivity, and excessive leverage — we would soon find that a little inflation doesn’t work. Then the instinct will be to do a little more — a seemingly temporary and “reasonable” 4 percent becomes 5, and then 6 and so on. What we know, or should know, from the past is that once inflation becomes anticipated and ingrained — as it eventually would — then the stimulating effects are lost. Once an independent central bank does not simply tolerate a low level of inflation as consistent with “stability,” but invokes inflation as a policy, it becomes very difficult to eliminate. It is precisely the common experience with this inflation dynamic that has led central banks around the world to place prime importance on price stability. They do so not at the expense of a strong productive economy. They do it because experience confirms that price stability — and the expectation of that stability — is a key element in keeping interest rates low and sustaining a strong, expanding, fully employed economy. Read A Little Inflation Can Be a Dangerous Thing here .

Time to get back to the basics. Citizens want to know: who is going to save us from the economic morass? The president? Congress? The Fed? And what tools might they use? Paddy Hirsch explains the core differences between fiscal policy and monetary policy at the Marketplace Whiteboard : Fiscal and Monetary Policy from Marketplace on Vimeo .

The Fed has released the minutes from the June Federal Open Market Committee meeting, and it is an interesting read. Okay, maybe interesting isn't the right word. Perhaps illuminating. In short, members of the committee hold to their views that the slow but steady recovery will continue, though they are looking at it as more slow now than they thought it would be a few months ago. And they largely hold to their policies of the moment--though there is clearly some disagreement over monetary policy moving forward: Most participants expected that much of the rise in headline inflation this year would prove transitory and that inflation over the medium term would be subdued as long as commodity prices did not continue to rise rapidly and longer-term inflation expectations remained stable. Nevertheless, a number of participants judged the risks to the outlook for inflation as tilted to the upside. Moreover, a few participants saw a continuation of the current stance of monetary policy as posing some upside risk to inflation expectations and actual inflation over time. However, other participants observed that measures of longer-term inflation compensation derived from financial instruments had remained stable of late, and that survey-based measures of longer-term inflation expectations also had not changed appreciably, on net, in recent months. These participants noted that labor costs were rising only slowly, and that persistent slack in labor and product markets would likely limit upward pressures on prices in coming quarters. Participants agreed that it would be important to pay close attention to the evolution of both inflation and inflation expectations. A few participants noted that the adoption by the Committee of an explicit numerical inflation objective could help keep longer-term inflation expectations well anchored. Another participant, however, expressed concern that the adoption of such an objective could, in effect, alter the relative importance of the two components of the Committee's dual mandate. Participants also discussed the medium-term outlook for monetary policy. Some participants noted that if economic growth remained too slow to make satisfactory progress toward reducing the unemployment rate and if inflation returned to relatively low levels after the effects of recent transitory shocks dissipated, it would be appropriate to provide additional monetary policy accommodation. Others, however, saw the recent configuration of slower growth and higher inflation as suggesting that there might be less slack in labor and product markets than had been thought. Several participants observed that the necessity of reallocating labor across sectors as the recovery proceeds, as well as the loss of skills caused by high levels of long-term unemployment and permanent separations, may have temporarily reduced the economy's level of potential output. In that case, the withdrawal of monetary accommodation may need to begin sooner than currently anticipated in financial markets. A few participants expressed uncertainty about the efficacy of monetary policy in current circumstances but disagreed on the implications for future policy. Read through the full minutes here .

William Dudley , President of the Federal Bank of New York , spoke earlier today at New York University's Stern School of Business, and he gave a measured, somewhat positive prognosis of the US economy. While he said that there are mixed signals coming from the employment data, there is some good news in the data on consumer spending, productivity, and consumer and business confidence. On the activity side, a wide range of indicators show a broadening and strengthening of demand and production. For example, on the demand side, real personal consumption expenditures rose at a 4.1 percent annual rate during the fourth quarter. This compares with only a 2.2 percent annual rate during the first three quarters of 2010. Orders and production are following suit. For example, the Institute of Supply Management index of new orders for manufacturers climbed to 67.8 in January, the highest level since January of 2004. The revival in activity, in turn, has been accompanied by improving consumer and business confidence. For example, the University of Michigan consumer sentiment index rose to 77.5 in February, up from 68.9 six months earlier. Indeed, the 2.8 percent annualized growth rate of real gross domestic product (GDP) in the fourth quarter may understate the economy's forward momentum. That is because real GDP growth in the quarter was held back by a sharp slowing in the pace of inventory accumulation. The revival in demand, production and confidence strongly suggests that we may be much closer to establishing a virtuous circle in which rising demand generates more rapid income and employment growth, which in turn bolsters confidence and leads to further increases in spending. The only major missing piece of the puzzle is the absence of strong payroll employment growth. We will need to see sustained strong employment growth in order to be certain that this virtuous circle has become firmly established. So, there's the good news. But Dudley was careful to caution against premature optimism. And he while he outlined the dangers of low-interest rates, and the chance they might "foster a buildup of financial excesses or bubbles that might pose a medium-term risk to both full employment and price stability," he also explained that the Fed does have tools to avert crisis: To summarize the main points, we have a considerable amount of slack, little evidence of discontinuous speed limit effects, and little inflation pass-through from commodities into core inflation when inflation expectations are well-anchored, which is currently the case. This suggests that the biggest risk in terms of higher underlying inflation over the next year or two is that inflation expectations could become unanchored. This might occur, for example, if there were a loss of confidence in the ability and/or willingness of the Federal Reserve to tighten monetary policy in a timely way in order to keep inflation in check. In this regard, the proof of the pudding will be in our actions—talk is cheap. What is key—that the appropriate policy steps are taken in a timely manner. Read Dudley's Prospects for the Economy and Monetary Policy here .