Fed's Rosengren says falling jobless rate a risk to sustained growth

New York Fed President William Dudley takes part in a panel convened to speak about the health of the U.S. economy in New York

New York Fed President William Dudley takes part in a panel convened to speak about the health of the U.S. economy in New York

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 Federal Reserve sent $80.2 billion to the Treasury Department in 2017, down from $91.5 billion in 2016. After the report, traders of short-term rate futures boosted bets the Fed will raise rates this year, and the yield on the two-year U.S. Treasury rose.

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

The tax cuts, he said, "will come at a cost".

"After all, there is no such thing as a free lunch", Dudley said during a speech in New York, according to prepared remarks. "These dynamics could counteract any favorable direct effects the tax package might have on capital spending and potential output".

He noted that corporations and higher-income Americans are less inclined to spend, suggesting "a significant portion of the tax cuts will be saved not spent".

A sharp rise in underlying inflation last month was not enough to convince at least one Federal Reserve policymaker that further interest rate hikes will soon be needed to keep a lid on rising prices. "I, for one, need to see more data", Minneapolis Federal Reserve Bank President Neel Kashkari said on Twitter, pushing back on the idea that inflation gains will convince Fed policymakers that inflation is on the upswing.

Dudley repeated he expects prices to rebound this year toward the target, and said 2018 should be "a good year" for the economy.

China's chronically high trade surplus with the U.S. hit a record level in 2017, adding fuel to Trump administration criticisms about Chinese trade practices just as it weighs a range of penalties and other actions to curb the imbalance.

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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