The 'FAIR Act' Scraps a Federal Reserve Rule: What Does Removing a Restriction on the Fed's Earnings Actually Mean?

The aptly named Fiscal Accountability for Interest on Reserves Act, or the FAIR Act, is a short, technical piece of legislation focused squarely on the inner workings of the Federal Reserve. Specifically, Section 2 of the FAIR Act proposes removing a specific restriction on how Federal Reserve Banks handle earnings on certain balances they hold. This is done by striking out paragraph (12) from Section 19(b) of the Federal Reserve Act, a part of the code that deals with reserve requirements and related matters.

The Fine Print: What’s Being Erased?

Think of the Federal Reserve Act as the rulebook for the central bank. The FAIR Act is essentially taking an eraser to one specific rule—the one contained in paragraph (12) of Section 19(b). While the bill doesn't spell out what that specific restriction was (which is frustrating for anyone trying to track oversight), the effect is clear: the Fed will no longer be bound by that particular constraint regarding how it manages the earnings on certain funds it holds. For the average person, this is about as exciting as watching paint dry, but it matters because it affects the operational flexibility of the most powerful financial institution in the country. This change isn't instant; it kicks in 180 days after the bill becomes law, giving the Fed about six months to adjust its internal accounting and operations.

Why Should We Care About the Fed’s Accounting?

This is a highly procedural change that won't immediately affect your mortgage rate or the price of gas, but it speaks to the ongoing debate about the Federal Reserve's autonomy and oversight. When Congress removes a specific restriction—even a technical one—it generally gives the institution more operational freedom. The Fed manages trillions of dollars, and the earnings on those balances often get remitted back to the U.S. Treasury, which helps fund the government. Removing a restriction could, in theory, simplify the Fed’s accounting or give it more leeway in managing its massive balance sheet. However, when you remove oversight or constraints without clearly stating what they were, it can raise an eyebrow about transparency. We don't know if this was an outdated rule or a necessary check, but the net result is one less statutory barrier for the Fed to work around. Ultimately, this change is internal to the Fed, affecting its procedures and potentially its flexibility, rather than directly hitting the wallet of a worker or small business owner.