The Federal Reserve (the “Fed”) is a behemoth agency with the ability to manipulate and control the entire American economy. Our jobs, our finances, our savings and, ultimately, our livelihoods — all of them are subject to the decisions made at the Fed.
But the Fed’s deliberations and operations happen behind closed doors.
It’s time for us to know how the Fed makes its decisions. Congress must take immediate steps to provide transparency for the American people.
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No other institution has so much unchecked power. Look no further than the unlimited authority the Fed used in response to the COVID-19 pandemic. The Fed printed money, purchased government-backed securities and doled out massive amounts of money to favored industries. These actions added almost $5 trillion in debt to the Fed’s balance sheet.
To be clear, representatives of the Fed are only interested in transparency to the extent it gives them political cover. Because, to them, the opacity of the Fed is a feature, not a bug, and their leadership considers secrecy to be a great asset.
If you ask them, accountability to the American people and to the taxpayers who prop up their financial house of cards is actually bad. From the Fed’s perspective, to even question this arrangement is in some way harmful or dangerous.
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Our country is now over $37 trillion in debt. Not enough people in Washington are willing to say “no” because they don’t want to stop spending other people’s money — the “other people” being future generations of Americans who are defenseless against the voices of the present as they ask for tomorrow’s money today.
The Fed owns a share of responsibility for this, as their machinations and manipulations help perpetuate this unsustainable state of affairs, but with increasing difficulty each year.
No one pays attention to the hundreds of billions of dollars the Fed unnecessarily paid to banks to not lend money to consumers.
For nearly a century, the Fed paid no interest to banks for holding Federal Reserves in those banks’ deposit boxes, but all that changed in the wake of the 2008 financial crisis.
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Paying interest to banks for holding Fed funds was originally intended to control inflation. And from 2008 to 2016, the interest rate on reserves was a paltry 0.25%, and annual payments averaged $5 billion.
But the situation quickly became dramatically different. Today’s interest rate is over 4% and, subsequently, the Fed’s subsidy to banks skyrocketed. To be clear, what this means is that the Fed has paid hundreds of billions of dollars to banks for not lending money to consumers.
If you ask them, accountability to the American people and to the taxpayers who prop up their financial house of cards is actually bad. From the Fed’s perspective, to even question this arrangement is in some way harmful or dangerous.
In 2022, the Fed paid nearly $60 billion to banks. In 2023, the Fed payments to banks rose to over $176 billion, and in 2024, the Fed’s subsidy to banks rose to about $186 billion. And 44% of these subsidies are paid to foreign banks.
It gets worse. The Fed is not profitable and hasn’t been profitable for several years. In fact, I have argued that the Consumer Financial Protection Bureau, the leviathan agency that infamously receives funding from the Fed, should be shut down because the Fed has been operating at a loss since 2022.
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One of the major reasons the Fed has continued to operate at a loss is because of its economically illiterate commitment to making these interest payments, which are entirely discretionary and not required.
The Fed has authority to reinstate reserve balance requirements and ensure banks would not be entitled to these interest payments. In the meantime, the Fed is choosing through its policies to make its losses worse than they need to be.
While the Fed no longer has profits and has ceased returning any profits to the taxpayers by remitting those funds to the Treasury, it has nonetheless paid hundreds of billions of dollars to banks. Meanwhile, the country’s largest banks receive the bulk of the Fed payments.
Although, it’s hard to say who and how much, because all of that is a secret kept hidden by the Fed, and it may only be the tip of the iceberg.
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Taxpayers need to know why the Fed can’t afford policies that benefit them, but can afford hundreds of billions in bank payouts.
The good news is that I am leading the charge against the Fed’s mismanagement and secrecy, and our ranks are growing.
On July 21, I introduced the “End the Fed’s Big Bank Bailout Act, which would terminate the Federal Reserve’s subsidy to big and foreign banks by prohibiting the payment of interest on reserve balances. Vermont Independent Sen. Bernie Sanders’s support of this legislation is indicative of the broad appeal of ending easy profits for banks at the expense of taxpayers.
I then proposed legislation to audit the Fed, the “Federal Reserve Transparency Act.” More and more figures in government are moving to hold the Fed accountable, and the momentum for transparency is building.
Now, in response to reports of hundreds of millions of dollars in cost overruns for what is now a $2.5 billion renovation of the Federal Reserve offices, the dam has broken.
In 2022, the Fed paid nearly $60 billion to banks. In 2023, the Fed payments to banks rose to over $176 billion, and in 2024, the Fed’s subsidy to banks rose to about $186 billion. And 44% of these subsidies are paid to foreign banks.
U.S. Secretary of Treasury Scott Bessent indicated on July 21 that we need to “examine the entire Federal Reserve institution and whether they have been successful[.] Has the organization succeeded in its mission? … All these PhDs over there, I don’t know what they do.”
Without accountability and transparency, the Fed has manipulated the economy and squandered resources. The reality is undeniable. The urgency is real. The moment is now. It’s time to audit the Fed.
Republican Rand Paul represents Kentucky in the United States Senate. He is the author of the book “The Case Against Socialism” (Broadside Books, October 2019).
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