Fed will pay smaller dividend to the US Treasury for 2017

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The central bank could use the profits of its bond holdings to cover its own operating expenses and sends the rest to the U.S. Treasury. The Fed hiked interest rates three times in 2017 and started to wind down its huge balance sheet but markets currently only expect the Federal Open Market Committee to vote for two rate rises in 2018. He also expressed confidence that inflation will continue to tick up until it meets the Fed's 2 percent goal for healthy growth.

The figure is an $11.7 billion, or nearly 13%, drop from the Fed's 2016 payment to the Treasury, which was $91.5 billion.

Economists believe that rising inflation indicates that the economy is growing in strength and that the Fed will soon need to take action.

"The economy has considerable forward momentum, monetary policy is still accommodative, financial conditions are easy, and fiscal policy is set to provide a boost".

"After all, there is no such thing as a free lunch", Dudley said during a speech in New York, according to prepared remarks.

The comments echo recent remarks from Fed Chair Janet Yellen, who said in November that escalating public debt and deficits "should keep people awake at night". That means private investment could be crowded out, possibly eclipsing benefits from capital spending and potential output. Zeroing in on a new cap on deducting state and local taxes, Dudley said the bill raises the cost of owning expensive properties in some areas and could diminish construction and prices.

"Keeping the economy on a sustainable path may become more challenging" for the Fed due to the risk of "overheating", he added.

The bank reported that the higher interest rates paid to banks for their reserves are the main reason for reducing payments to the government.

U.S. Federal Reserve said on Wednesday that its remittances to U.S. Treasury Department are expected to continue to decline in 2017 due to increases in interest payments to commercial banks.

Despite his longer-term pessimism, Dudley raised his outlook for 2018 GDP growth from 2.5 percent to 2.75 percent.

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