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Federal Reserve Revenue: Cutsinger’s Solution

The Federal Reserve sets its own operating budget and remits any surplus to the Treasury, but it lacks a residual claimant who would benefit from cost savings. Because officials do not capture saved dollars, there is little incentive to minimize expenses, allowing budget slack. Moreover, the Fed can increase its earnings by creating money and holding interest‑bearing assets, which creates an inflationary bias even under a price‑stability mandate. Remitting excess revenue after the budget is set does not impose an ex‑ante constraint, so the incentive problems persist.