FedNow, which the central bank has been developing for the past several years, is intended as a “flexible, neutral platform that supports a broad variety of instant payments” such that consumers can immediately send money through their financial institutions, according to a description from the central bank. Federal Reserve Vice Chair Lael Brainard said during a speech to developers that FedNow will “transform the way everyday payments are made throughout the economy.”
“Immediate availability of funds could be especially important for households managing their finances paycheck to paycheck or small businesses with cash flow constraints,” she explained. “Having the capacity to manage money in real time could help households avoid costly late payment fees or free up working capital for small businesses to finance growth.”
Among other examples, FedNow is set to eliminate merchants’ need to wait one to three days before payments are finished depositing, as well as the need for workers to wait days before receiving paychecks. Retailers currently pay an average interchange fee of $0.23 when consumers use debit cards, according to data from the Federal Reserve, which FedNow hopes to significantly undercut.
“Americans rely on the payment system all day every day to make purchases, pay bills, and get paid — without ever needing to consider the complex infrastructure that is operating under the hood,” Brainard added. “American households and businesses want and deserve payment transactions that work seamlessly, reliably, and efficiently.”
The move comes as the central bank also considers the creation of a “central bank digital currency” (CBDC) that would work as an alternative to other digital assets — including cryptocurrencies, which are virtual coins protected from counterfeiting via encryption, and stablecoins, which attempt to peg themselves to another asset such as gold or the dollar. Federal Reserve Chair Jerome Powell told lawmakers last year that he had no desire to hasten the project.
“I think our obligation is to explore both the technology and the policy issues over the next couple of years,” he said. “That’s what we’re going to do so that we’re in a position to make an informed recommendation. Again, my mind is open on this, and I honestly don’t have a preconceived answer to these questions.”
In recent months, the Federal Reserve has attempted to manage inflation levels that have repeatedly surpassed four-decade highs. According to the Bureau of Labor Statistics, year-over-year inflation reached 8.5% in July 2022, with a slight moderation from the 9.1% reading in the previous month driven by lower energy prices — even as costs for food, new vehicles, medical care, and shelter continue to rise.
“Price stability is the responsibility of the Federal Reserve and serves as the bedrock of our economy,” Federal Reserve Chair Jerome Powell said in a speech delivered at the central bank’s annual symposium in Jackson Hole, Wyoming. “Without price stability, the economy does not work for anyone. In particular, without price stability, we will not achieve a sustained period of strong labor market conditions that benefit all. The burdens of high inflation fall heaviest on those who are least able to bear them.”