Federal Discount Rate

What is the 'Federal Discount Rate'

The Federal discount rate is the interest rate set by the Federal Reserve that is offered to eligible commercial banks or other depository institutions in an attempt to reduce liquidity problems and the pressures of reserve requirements. The discount rate allows the federal reserve to control the supply of money and is used to assure stability in the financial markets.

BREAKING DOWN 'Federal Discount Rate'

A decrease in the discount rate makes it cheaper for commercial banks to borrow money, which results in an increase in the supply of money in the economy. Conversely, a raised discount rate will make it more expensive for the banks to borrow, and would thereby decrease the money supply. Funds borrowed from the fed are processed through the discount window and the rate is reviewed every 14 days.

RELATED TERMS
  1. Discount Window

    Credit facilities in which financial institutions go to borrow ...
  2. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  3. Adjustment Credit

    A short-term loan made by a Federal Reserve Bank to a smaller ...
  4. Federal Reserve Credit

    Refers to the process of the Federal Reserve lending funds on ...
  5. Key Rate

    The specific interest rate that determines bank lending rates ...
  6. Federal Funds

    Excess reserves that commercial banks deposit at regional Federal ...
Related Articles
  1. Personal Finance

    How The U.S. Government Formulates Monetary Policy

    Learn about the tools the Fed uses to influence interest rates and general economic conditions.
  2. Professionals

    Economic Policy And The Federal Reserve

    The government has two tools that it can use to try to influence the direction of the economy. Monetary policy, which is controlled by the Federal Reserve Board, determines the nation’s ...
  3. Economics

    Fed's Discount Rate

    The Federal discount rate is the amount of interest a central bank charges private banks for short-term loans.
  4. Economics

    What's the Federal Funds Rate?

    The federal funds rate is the interest rate banks charge each other for overnight loans to meet their reserve requirements.
  5. Economics

    The Federal Reserve: Monetary Policy

    The term monetary policy refers to the actions that the Federal Reserve undertakes to influence the amount of money and credit in the U.S. economy. Changes to the amount of money and credit affect ...
  6. Professionals

    Monetary Policy

    FINRA Series 6 Exam Study Guide - Monetary Policy. In this section, Monetary policy tools, money supply and interest rates. The role of the federal reserve board in monetary policy.
  7. Professionals

    Goals and Targets of the U.S. Federal Reserve

    CFA Level 1 - Goals and Targets of the U.S. Federal Reserve
  8. Forex

    The Fed

    The Fed's role on interest rates and the forex market
  9. Economics

    How The Federal Reserve Manages Money Supply

    The Fed's three main tools are manipulating reserve requirements, changing the discount rate, and open-market operations.
  10. Professionals

    Economic Growth Factors

    NASAA Series 65: Section 15 Economic Growth Factors. In this section fiscal policy and monetary policy.
RELATED FAQS
  1. How does the Federal Reserve determine the discount rate?

    Learn about the several different kind of discount rates offered to banks and other depository institutions through the Federal ... Read Answer >>
  2. How is money supply used in monetary policy?

    Learn about the three components of the Federal Reserve's monetary policy. Understand how these three components use the ... Read Answer >>
  3. How does the Federal Reserve's set discount rate affect my personal finances?

    Discover how the Federal Reserve implements its chosen monetary policy through its discount rates, and how these actions ... Read Answer >>
  4. What's the difference between the prime rate and the discount rate?

    Learn more about the prime rate and the discount rate and how the Federal Reserve uses these rates in the U.S. economy. Explore ... Read Answer >>
  5. How do central banks impact interest rates in the economy?

    Learn how central banks such as the Federal Reserve influence monetary policy in the economy by increasing or decreasing ... Read Answer >>
  6. Why do commercial banks borrow from the Federal Reserve?

    Learn how commercial banks borrow from the Federal Reserve to meet minimum reserve requirements, and discover the pros and ... Read Answer >>
Hot Definitions
  1. Law Of Demand

    A microeconomic law that states that, all other factors being equal, as the price of a good or service increases, consumer ...
  2. Cost Of Debt

    The effective rate that a company pays on its current debt. This can be measured in either before- or after-tax returns; ...
  3. Yield Curve

    A line that plots the interest rates, at a set point in time, of bonds having equal credit quality, but differing maturity ...
  4. Stop-Limit Order

    An order placed with a broker that combines the features of stop order with those of a limit order. A stop-limit order will ...
  5. Keynesian Economics

    An economic theory of total spending in the economy and its effects on output and inflation. Keynesian economics was developed ...
  6. Society for Worldwide Interbank Financial Telecommunications ...

    A member-owned cooperative that provides safe and secure financial transactions for its members. Established in 1973, the ...
Trading Center