* Unrealized result was a $53 bln loss due to market drop
* Potential political lightning rod for U.S. central bank
(Adds unrealized loss, politics, background from previous year)
NEW YORK, April 17 (Reuters) - The Federal Reserve logged $84 billion in net profit last year on its massive portfolio of assets, and average income will probably remain higher than before the financial crisis for another decade to come, according to an annual report.
While the New York Fed's report on its open market operations, released on Thursday, painted an optimistic picture of what could be a thorny political issue for the U.S. central bank, it noted that the portfolio would have logged an unrealized loss of $53 billion had the Fed been forced to "mark to market" its assets, as private firms do under law.
It was the first time the Fed formally acknowledged unrealized losses. But since it is not required to use current market prices in its accounting, and it did not sell any assets, for now the Fed continues to transfer profits to the government.
The Fed has swollen its overall balance sheet to more than $4 trillion since the depths of the financial crisis in 2008 to lower borrowing costs across the economy, and to encourage hiring and growth.
"The large size of the SOMA portfolio (System Open Market Account), its considerable holdings of longer-term securities, and the low interest rates paid on the Federal Reserve's interest-bearing liabilities continued to generate high portfolio net income, which totaled $84 billion in 2013," the report said.
The profit falls just short of the $89 billion the central bank logged in 2012. That year, when prices in the overall bond market were still rising, the unrealized result was not a loss but a gain of $215 billion.
The Fed's mandate is for low and stable inflation and maximum sustainable employment, and says nothing about generating profits or losses. But it turned to unconventional policies, including asset purchases, to battle the 2007-2009 recession, and is currently buying $55 billion in Treasuries and mortgage bonds each month.
The political risk for the Fed is that it will start to realize losses if it sells the bonds in the years ahead, as bond markets drop as expected. Lawmakers who want to clamp down on the central bank's independence could point to the losses as reason to do so.
But Fed Chair Janet Yellen and other policymakers have said they do not intend to have to sell the mortgage bonds on the balance sheet, and may not sell Treasuries either, electing instead to let them mature.
The report, citing current expectations for the portfolio and interest rates, said "net income is projected to remain higher than pre-crisis levels, on average, through 2025 in the current baseline projection and many alternative scenarios."
In another potential political headache, the Fed pays banks interest on their excess reserves to help it keep a firm grip on overall short-term borrowing costs. Last year those payments totaled $5 billion, up from $4 billion in 2012, the report said.
The New York branch of the Fed, which does all of its buying, expanded its System Open Market Account to $3.8 trillion at the end of 2013, from $2.8 trillion a year earlier. It said the market appeared to absorb the heavy buying without disruption.
(Reporting by Jonathan Spicer; Editing by James Dalgleish)