By Kate Davidson

Remittances from the Federal Reserve to the Treasury Department fell to $92 billion last year, the U.S. central bank said Tuesday, a long-anticipated decline that officials have said was likely once interest rates start to rise.

In total, the Fed's net income declined by $7.6 billion last year to $92.7 billion, primarily as a result of higher interest payments it made to banks on the reserves they park at the central bank. Those payments increased by $5.2 billion last year. The Fed also earned $2.5 billion less in interest income as a result of changes in the composition of securities held in its System Open Market Account.

The Fed said the figures released Tuesday are preliminary and could be adjusted when its audited financial statements are released in March.

Remittances to Treasury have grown substantially in recent years along with the size of the Fed's balance sheet following a series of bond-buying programs the Fed launched to try to stimulate the economy.

The Fed earns interest on those bonds as well as income from other sources. Under law, it uses the revenue to cover its own operating expenses and sends the rest to Treasury's general fund to help pay the federal government's bills.

The Fed sent a then-record $97.7 billion to Treasury in 2015, which followed a previous record $96.9 billion payment in 2014. By contrast, the Fed sent just $31.7 billion to Treasury in 2008.

The payments are likely to continue to shrink in the coming years as the Fed raises short-term interest rates -- a process that involves paying banks higher interest in reserves they keep at theFed -- and when it eventually shrinks its balance sheet.

The Fed in mid-December raised its benchmark federal-funds rate to a range between 0.50% and 0.75%, after lifting rates a quarter-percentage point in December 2015 for the first time in nearly a decade. Officials said last month they expect to raise rates three times this year.

Reserve bank operating expenses totaled $4 billion, including $709 million for expenses at the Fed board and $596 million at the Consumer Financial Protection Bureau.

The Fed also said it sent no money to its surplus account due to new limitations under the 2015 federal highway bill, which capped the Fed's surplus at $10 billion.

Write to Kate Davidson at kate.davidson@wsj.com

(END) Dow Jones Newswires

January 10, 2017 12:14 ET (17:14 GMT)

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