Senator Ted Cruz is in the spotlight with a proposed bill to remove the Federal Reserve’s (Fed) authority to pay interest on banks’ reserves. Cruz argues that this move would save the government more than $1 trillion. However, experts warn that this could destabilize money markets and weaken the Fed’s ability to manage interest rates.
Currently, the Fed pays banks 4.4% interest on their reserves and 4.25% interest on reverse repurchase agreements. These tools are critical for keeping short-term interest rates under control.
According to experts, removing these mechanisms would weaken monetary policy and lead to financial fluctuations in the markets.
Cruz has also conveyed his proposal to former President Donald Trump and other Republicans. According to Cruz, these payments provide unfair profits, particularly to foreign banks. However, some, such as Republican Senator Tim Scott, say that such a radical change should be carefully considered.
Analysts at major financial institutions like Barclays and J.P. Morgan believe that this plan would lead to market chaos instead of reducing government spending.
