From Yahoo Finance: 2025-06-12 17:15:00

Senator Ted Cruz of Texas is proposing to strip the Federal Reserve of its power to pay banks interest on cash they park on central bank books, aiming to save the government $1 trillion. His plan has received mixed reactions, with experts warning it could cause chaos for monetary policy implementation. Cruz’s office did not respond to requests for comment.

Cruz has lobbied President Trump and Republican colleagues about his idea, arguing it would save significant money. The Fed’s power to pay banks interest was granted by Congress in 2008 to help manage liquidity during the financial crisis. Some experts worry that ending this power could disrupt money markets and undermine the Fed’s ability to control short-term rates.

Experts believe Cruz’s plan would not achieve its intended goals and could instead lead to financial market upheaval. Barclays Capital economists say ending the Fed’s power would push cash into the reverse repo facility, still resulting in significant interest payments to financial firms. J.P. Morgan strategists warn that the Fed’s ability to control money market rates could be compromised, complicating broader financial conditions.



Read more at Yahoo Finance: Effort to strip Fed of interest paying power seen likely to bring upheaval to markets