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DerbyTue, Jul 29, 2025, 11:12 AM 5 min readBy Michael S. Derby(Reuters) -A U.S. senator's recent push to strip the Federal Reserve of a key aspect of how it controls interest rates and the battle over who will succeed Fed Chair Jerome Powell point to a future where some of the tools policymakers use to influence the economy come under greater scrutiny.There's no sense of imminent changes in the Fed's monetary policy mechanics. But that may not always be the case, especially as President Donald Trump, a persistent critic of the central bank who wants it to reduce interest rates, prepares to name a successor for Powell, whose term expires next May.The first sign of shifting ground came from Republican Senator Ted Cruz, who last month pushed to end interest payments paid by the Fed on bank reserves parked at the central bank. Ending this practice was also cited, among other back-to-basics proposals, in the influential Project 2025 effort that has helped drive some of Trump's agenda since he returned to power in January.Cruz's effort appears to have gained little traction, but success would upend how the Fed manages interest rates and have major implications for the central bank's large bond holdings.Meanwhile, how the Fed uses bond purchases and its balance sheet to stimulate or restrain the economy is also getting attention. It has been shedding bonds since 2022, but at least one possible Powell successor wants an even more aggressive drawdown motivated by a novel understanding of how the balance sheet affects the economy.TOOL TROUBLEThe Fed began paying interest on bank reserves during the global financial crisis in 2008. With its benchmark interest rate near zero and the financial system flush with cash from the central bank's bond purchases, this move granted the same control over rates the Fed had when bank reserves were much less abundant.Over time the Fed built out this system and formalized it in 2019. Officials have shown no desire to go back to the pre-crisis system."The current regime has a number of positive attributes that people I don't think fully appreciate," said William Dudley, a former head of the New York Fed who also managed the implementation of monetary policy when the new system was created. "It makes monetary policy execution really easy" and saves the Fed from active intervention in markets to manage reserve levels.The system, however, has been dogged by criticism that it is an unfair financial sector subsidy. It has also pushed the Fed from a consistent profit maker to a money loser, and the profits it once handed to the Treasury to defray federal deficits are gone until the central bank can clear the red ink.Terms and Privacy PolicyPrivacy & Cookie SettingsMore InfoS&P 5006,343.17 -27.69 (-0.43%)Dow 3044,327.86 -305.13 (-0.68%)Nasdaq21,037.95 -60.34 (-0.29%)Russell 20002,255.73 +12.77 (+0.57%)VIX15.95 -0.03 (-0.19%)Gold3,338.10 -43.10 (-1.27%)PortfolioSign in to access your portfolioSign inTop gainersPIII P3 Health Partners Inc. 7.40 +1.60 (+27.59%)FTAI FTAI Aviation Ltd. 145.11 +30.96 (+27.13%)WING Wingstop Inc. 365.00 +74.70 (+25.73%)GNRC Generac Holdings Inc. 180.42 +29.10 (+19.23%)TER Teradyne, Inc. 108.16 +17.61 (+19.46%)Top losersNEGG Newegg Commerce, Inc. 43.69 -12.50 (-22.15%)CAR Avis Budget Group, Inc. 171.47 -32.41 (-15.90%)SLGN Silgan Holdings Inc. 46.79 -9.01 (-16.16%)CHKP Check Point Software Technologies Ltd. 186.68 -31.65 (-14.50%)ENTG Entegris, Inc. 81.07 -11.68 (-12.59%)Most activeSOFI SoFi Technologies, Inc. 21.50 -0.90 (-4.04%)NVDA NVIDIA Corporation 178.71 +3.20 (+1.82%)LCID Lucid Group, Inc. 2.4850 -0.0750 (-2.93%)TSLA Tesla, Inc. 313.02 -8.18 (-2.55%)AAL American Airlines Group Inc. 11.40 -0.02 (-0.18%)Earnings eventsTrending tickersWING Wingstop Inc. 364.50 +74.20 (+25.56%)MRVL Marvell Technology, Inc. 80.84 +4.50 (+5.89%)NVDA NVIDIA Corporation 178.13 +2.62 (+1.49%)SBUX Starbucks Corporation 92.66 -0.30 (-0.32%)PTON Peloton Interactive, Inc. 7.15 +0.97 (+15.68%)Top economic events