As Donald Trump seeks to take direct control of the Federal Reserve, the debate has fallen into a familiar pattern: Trump attacks a crucial institution; Democrats line up to reflexively defend that institution. This is unfortunate. Trump’s attacks on Fed independence are likely illegal, and the consequences of him personally ordering dramatic interest-rate cuts could be profoundly harmful, but preserving the status quo would also be a mistake. The central bank has long abused its power in ways that benefit the financial sector at the expense of everyone else. The core idea of central-bank independence is that the setting of interest rates should not be influenced by the incentives of partisan politics. Economists have demonstrated what is common sense: Maximizing long-term economic health sometimes means short-term pain. But incumbent politicians, with an eye toward the next election, will always be tempted to sacrifice long-term considerations to avoid immediate hardship. Allowing a central bank to set interest rates without political interference solves this problem. On this mark, the Fed deserves praise. It has long set interest rates independently and, for the most part, wisely. But setting interest rates is not the only thing the Fed does. It also regulates large parts of America’s financial sector, operates and regulates our payment systems, and serves as a lender of last resort; it can print money and bail out institutions and investors that it deems worthy. The Fed has interpreted its independence to extend to all of these areas, operating as it sees fit—even to the point of ignoring laws it doesn’t agree with. [Rogé Karma: Trump is getting closer to having an ‘infinite money pit’] In 1994, for example, Congress passed the Home Ownership Equity Protection Act, requiring the Federal Reserve to issue strong regulations within six months to protect people from subprime mortgages. Alan Greenspan, at the time the chair of the Fed, declined to do so, in part because he disagreed with Congress’s instruction to categorize certain types of loans as “unfair” or “abusive.” Years later, the Financial Crisis Inquiry Commission concluded that the subprime-mortgage debacle had been preventable: “The prime example is the Federal Reserve’s pivotal failure to stem the flow of toxic mortgages, which it could have done by setting prudent mortgage-lending standards. The Federal Reserve was the one entity empowered to do so and it did not.” Have you ever wondered why you have to wait so long to access money deposited in your bank account? Here, again, blame the Fed, which operates the country’s largest payment systems (such as ACH transfers) while also regulating private interbank payments. In 1987, Congress passed a law requiring banks to give people access to their own money in “​​as short a time as possible” under available technology. But implementation was left to the Fed. And in the past 38 years, the Fed has never shortened the time a bank is allowed to hold your check—that is, the time between when you deposit it and when you can access the money. The exact time varies, but a check deposited on a Friday is generally not available until Tuesday. The resulting delay causes wealthy people to lose a little interest on that deposit, which earns some money for the banks. But the real moneymaker for banks are the overdraft fees that banks charge on people who live paycheck to paycheck. In my research, I have found that up to 40 percent of overdrafts are caused by the lag in crediting people’s accounts with their own money, including delays in so-called direct deposits. American banks and credit unions made at least $30 billion in annual profits from overdrafts as of 2020. For some banks, the fees are essentially their entire business model. Arvest Bank, for example, reported $71.8 million in overdraft fees in 2024 and only $53 million in net income, meaning it would not even have been profitable without overdrafts. Arvest is owned by the Walton family and is one of the largest banks regulated by the St. Louis Federal Reserve. If the Fed implemented the law on payments, banks like Arvest would be in financial trouble. But the Fed seems to view its job as ensuring that banks are profitable, even if that comes at the expense of people living in precarity. When one bank CEO christened his boat Overdraft, perhaps he toasted the Fed. The Fed’s habit of helping banks while avoiding legal requirements to help people is on full display in its role as the “lender of last resort” during financial crises. Congress gave the central bank this authority in 1933. For generations, the Fed declined to use it, instead cajoling the private sector to pick up the tab for costly bank failures. That changed in 2008. After Bear Stearns collapsed, the Fed “broke the glass” and used $30 billion to prop up JPMorgan’s purchase of the failed bank. Bear Stearns shareholders got $10 a share, while thousands of families who were sold toxic subprime mortgages financed through Bear Stearns—the same mortgages that the Fed refused to regulate—lost their homes. [Caitlin B. Tully: The court has an easy answer on the Fed] During the coronavirus pandemic, Congress tried to leverage the magic bailout machine, giving money to the Fed to allow it to lend $600 billion to small and medium-size businesses. But the Fed’s Main Street Business Lending Program turned out to be a Rube Goldberg system that business owners struggled to navigate, leading the CEO of the Association for Corporate Growth to say, “I could neither borrow from the program nor find someone who has received a loan through it.” According to a Boston Fed report, only $17.5 billion, or less than 3 percent of the promised amount, ended up flowing to Main Street businesses. Instead, the Fed focused on Wall Street, lending more than $100 billion to buy corporate debt, keep money-market mutual funds whole, help investment banks, and prop up investors who otherwise would have lost money. Big corporations used much of these bailout funds to boost their stock price through share buybacks and dividends, and didn’t have to protect workers hit hard by the pandemic. The Fed lent twice as much money—$33.5 billion—to 25 of the largest banks in the world than it did to America’s more than 30 million small businesses. There are no doubt valid logistical reasons why it’s harder to lend to small businesses than to big banks. But that is not enough to explain the extreme disparity between the two programs. That gap reflects the fact that the Fed sees its job primarily as serving the banking system, not ordinary people and local businesses. Trump’s plan to turn the Fed into an arm of the White House is the worst of all possible worlds. The president has already undermined the Fed’s independence by appointing his chief economist, Stephen Miran, as a governor even as Miran continues to hold his White House job. If the Supreme Court allows Trump to fire and replace Fed Governor Lisa Cook, then every Fed governor would serve at the pleasure of the president and could be fired for any vote that displeases him. Interest rates will be held hostage by short-term electoral considerations. If, however, the Court rules against Trump—as it is widely expected to do—congressional Democrats should not consider the matter of Fed independence resolved. Instead, a future Democratic administration and Congress should pass legislation preserving the Fed’s independent power to set monetary policy, while stripping most other authorities away from the central bank. The logic of central-bank independence simply does not apply to such matters as bank regulation and payment systems, which ought to be subject to democratic control. During the 2008 financial crisis, Senator Chris Dodd’s original version of what became the Dodd-Frank Act envisioned shifting a large amount of bank regulation from the Fed to the comptroller of the currency. Dodd lost a vote on that element of the bill 90–9, showing the political obstacles to reform. Dodd-Frank did require the Federal Reserve to set new regulations on executive compensation for bankers. Current Fed Chairman Jerome Powell, however, has refused to finalize the regulation. More than 15 years after Dodd-Frank, the necessity of Dodd’s original approach has only gotten clearer. International precedent exists for such reforms. The United Kingdom launched a real-time payments system in 2008. Shortly thereafter, it took responsibility for regulation and operation of its payment systems away from its central bank, creating a dedicated payments regulator. According to my calculations, had the United States moved to real-time payments when the British did, more than $200 billion would have been saved by people living paycheck to paycheck—money that has instead flowed to bank profits, check cashers, and payday lenders. [Annie Lowrey: The markets won’t save the Fed from Trump] Congress could relieve the Fed of its bailout responsibilities, assigning that job to the Federal Deposit Insurance Corporation, subject to congressional approval. This would build on a system of lending to banks that the FDIC successfully used during the 2008 financial crisis, codified into law as part of Dodd-Frank. Members of Congress must weigh the popular backlash against bailouts with economic necessity; unlike the Fed, they face democratic accountability. Trump’s attacks on America’s bedrock institutions deserve a thoughtful response, not a defensive one. Trump often identifies real problems, even if he offers terrible solutions. The Federal Reserve has abused its independence for decades, substituting its judgment for the law with no mechanisms to hold it accountable. As a spate of recent insider-trading scandals among senior Fed officials demonstrates, the institution can’t even hold its own personnel accountable. Democrats can oppose Trump’s efforts without rallying around a flawed institution that has put the interests of the most powerful ahead of those of the most vulnerable. To save the Fed’s independence on monetary policy, Congress should strip it of everything else.