Fed Independence Has Moved Into the Money Pipes

The most important fight over the Federal Reserve may no longer be the one everyone knows how to argue about.

We are used to thinking of Fed independence as a fight over interest rates: presidents want cheaper money before elections, central bankers are supposed to resist if inflation says no. That story is still alive. President Donald Trump spent much of Jerome Powell’s final stretch as Fed chair attacking him for not cutting rates, then told Kevin Warsh at his White House swearing-in that he wanted the new Fed chair to be “totally independent,” according to the Associated Press¹. Axios also reported that Trump, asked about the possibility Warsh might raise rates, said, “I’m going to let him do what he wants to do,” even as futures markets were pricing higher odds of a 2026 rate hike than a cut, with CME-based odds cited by Axios² at 60 percent for at least one hike.

That is the visible fight. The quieter one is about plumbing.

The Federal Reserve is the U.S. central bank, the institution Congress charged with supporting maximum employment and stable prices and with helping provide a safe, flexible and stable monetary and financial system, as the Fed explains in its own public FAQ on independence³. A Fed chair leads the Board of Governors and is the public face of monetary policy, meaning decisions over interest rates, the balance sheet and financial conditions. But the Fed also runs the core settlement infrastructure of American money. A master account is, in plain English, a bank account at a Federal Reserve Bank. It lets an eligible institution settle payments directly in central-bank money rather than going through another bank. For a fintech firm, meaning a technology-centered financial company, that access can mean faster payments, lower dependence on incumbent banks and a badge of legitimacy.

My view is that Trump has not yet crossed the bright legal line of ordering the Fed to approve favored firms. But he is not cleanly respecting Fed independence either. He is trying to narrow the idea of independence to headline rate decisions while pushing the central bank on a separate function that is just as public, just as sensitive and much less understood: who gets to plug directly into the money pipes.

The administration’s defense has one strong point. The White House order issued on May 19 is written like a request, not a command. It asks the Fed to evaluate the law governing Reserve Bank payment accounts and services for uninsured depository institutions and non-bank financial companies, including digital-asset firms and other novel financial companies, and to report findings to the president within 120 days, according to the executive order⁴. It also tells the Fed to consider expansion only “to the extent permitted by law” and subject to risk-management requirements, while asking for transparent application procedures and 90-day determinations if direct access is lawful, according to the same White House order⁴.

That matters. Presidents are allowed to have policy views. They are allowed to ask independent agencies to explain themselves. Warsh himself has embraced a version of that distinction. In his April confirmation testimony, he said “monetary policy independence is essential,” but also argued that independence is “at its peak” in monetary policy and does not extend with the same force to all Fed functions, including bank regulation and stewardship of public money, according to his Senate Banking Committee opening statement⁵. That is not a fringe argument. It is a serious theory of the Fed’s place in a democratic system.

But it is also too neat.

The Fed’s payment-account decisions are not ordinary paperwork. In 2022, the Fed adopted final guidelines for Reserve Banks to use when reviewing requests for accounts and payment services, saying the process should be transparent, risk-based and consistent, and that institutions with novel charters or activities could face more extensive review than federally insured banks, according to the Fed’s account-access guidelines announcement⁶. That is the Fed saying, in bureaucratic language, that access to its accounts is a safety-and-soundness question. It is about who can settle in the safest form of money in the system.

The firms at issue are not hypothetical. Reuters reported that Kraken was granted a Fed master account in March, giving it access to Fedwire and the ability to hold limited overnight balances, while Ripple, Anchorage Digital and Wise also hope to win master accounts, according to Reuters as republished by Investing.com⁷. Kraken’s case shows the attraction of direct access: fewer correspondent-bank bottlenecks, faster movement of money and a clearer path for crypto and fintech firms into mainstream financial infrastructure, as Reuters described in a separate report on Kraken’s access to the Fed’s core payment systems⁸.

There is a real pro-competition argument here. Banks have long enjoyed privileged access to the settlement layer. If a regulated nonbank or special-purpose institution can meet the same operational, anti-money-laundering and liquidity standards, forcing it to rent access from incumbent banks can look less like prudence and more like protectionism. The Fed’s own May 20 proposal nods in that direction by seeking comment on a limited-purpose “payment account” for legally eligible institutions, while saying the proposal would not expand legal eligibility, would not provide intraday credit, would not offer discount-window access, would not pay interest on balances and would use automated controls to prevent overdrafts, according to the Fed’s payment-account proposal⁹.

That is why I would not describe this as a simple Trump-versus-the-Fed power grab. The Fed had already been exploring a restricted account model before the executive order, and Governor Lisa Cook supported putting the proposal out for comment because it could support innovative business models while mitigating risks to Reserve Banks, according to her May 20 statement¹⁰. This is not a case where the central bank publicly said no and the White House publicly ordered yes.

The problem is the combination of context, timing and target. Trump’s order does not merely ask whether the current framework is sound. It declares a policy of integrating digital assets and innovative technology into traditional financial services and payment systems, then asks the Fed to study expanded direct access and produce a report to the president on a fixed timetable, according to the White House order⁴. That is pressure. Soft pressure, yes. Legally hedged pressure, yes. But pressure on a discretionary central-bank function all the same.

The legal backdrop makes that pressure more important, not less. In Custodia Bank’s master-account case, the Tenth Circuit held in 2025 that Federal Reserve Banks have discretion to approve or deny master-account applications from eligible entities and that eligible institutions are not automatically entitled to accounts, according to the court’s published opinion summarized by Justia¹¹. The court also framed that discretion as part of the Fed’s ability to safeguard the financial system, according to the same Tenth Circuit opinion¹¹. If discretion is the safeguard, then political pressure on how quickly, broadly and consistently that discretion should be used is not a side issue. It is the issue.

The Fed’s internal disagreement underscores the risk. Governor Michael Barr dissented from the May 20 payment-account proposal because, while he supported the idea of a prototype account, he said the safeguards were not specific and robust enough to prevent money laundering and terrorist financing by institutions the Fed does not supervise, according to his dissenting statement¹². Cook, while supportive, also asked for public input on the systemic impact of granting clearing and settlement capabilities to firms without deposit insurance and not subject to comprehensive federal oversight, according to her statement¹⁰.

That is the heart of the matter. Direct access is not just a fintech prize. It reallocates risk. A firm that settles directly through the Fed may reduce one kind of dependency, but it also moves the central bank closer to business models it may not supervise as fully as traditional banks. The Fed can manage that with balance limits, no overdrafts, no emergency lending and no interest on balances. But those restrictions are not decoration. They are the guardrails that make the experiment defensible.

So I do not buy the tidy claim that Fed independence is only about interest rates. Yes, monetary policy deserves the highest wall against political pressure. But the payment system is where public money becomes usable money. If the White House can praise rate independence while steering access to central-bank settlement, independence has been redefined downward.

The next test is concrete. Watch the Fed’s final payment-account rule, the 120-day report due under Trump’s May 19 order, and the treatment of applicants such as Ripple, Anchorage Digital and Wise. If the final rule preserves the Fed’s 2022 risk tiers, keeps Reserve Bank discretion, explains approvals and denials in supervisory terms and shows no special acceleration after White House pressure, the system will have bent without breaking. If the final rule turns 90-day determinations into a political fast lane for novel firms before anti-money-laundering, supervision and systemic-risk questions are settled, then the Warsh-era promise of independence will already have failed its first non-rate test.