In the reaction to the 2008 financial crisis the fed began paying interest to banks on cash reserves (no-risk deposits at the federal reserve banks). This made it became more lucrative to deposit money at fed reserve than to make loans to the public. This emergency measure has never been eliminated.
ref: CNBC interview with Economist Judy Shelton on 7/21/2025, on Squawk Box, by Joe Kernan giving her room to speak freely.
She has been saying that structural issues and policy like this with the Fed are comparable problems with the Fed decision making, not just the political witholding of interest rate cuts. IMO she should be the next chair. She was nominated to the board in Trump’s first term but blocked by the industry and vested interests, (per wiki).