A reckoning could be coming over Fed’s payments to banks

By Karen Petrou

Congress will do nothing about anything until the midterm election seals each member’s fate. Thus, I expect nothing to come from Congress in 2022 responding to the Federal Reserve’s sudden turn for the financial worst. However, when Congress again comes to thinking about the Fed, it will not go unnoticed, despite all the acrimony about monetary-policy miscues, that taxpayers are in some ways now far more clearly subsidizing payments to banks, money market funds and other financial companies holding deposits with the central bank or using its standing market windows.
The last time Congress thought about interest rates on reserves (IRR), more than a few members wanted it back. Given that these payments are now at what seems direct taxpayer cost, they’ll have a lot of new friends in the next Congress unless someone quickly shows why these interest payments are an artifact of Fed confusion, not big-bank malfeasance.