Federal Discount Rate


DEFINITION of 'Federal Discount Rate'

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.

  1. Liquidity

    The degree to which an asset or security can be quickly bought ...
  2. Monetary Policy

    Monetary policy is the actions of a central bank, currency board ...
  3. Discount Rate

    The interest rate charged to commercial banks and other depository ...
  4. Federal Reserve Bank

    The central bank of the United States and the most powerful financial ...
  5. Money Supply

    The entire stock of currency and other liquid instruments in ...
  6. Federal Reserve System - FRS

    The central bank of the United States. The Fed, as it is commonly ...
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  1. How does the Federal Reserve determine the discount rate?

    There are several different discount rates offered through the Federal Reserve system. Technically, discount rates are set ... Read Full Answer >>
  2. Who determines interest rates?

    In countries using a centralized banking model, interest rates are determined by the central bank. In the first step of ... Read Full Answer >>
  3. How do central banks acquire currency reserves and how much are they required to ...

    A currency reserve is a currency that is held in large amounts by governments and other institutions as part of their foreign ... Read Full Answer >>
  4. How is the Federal Reserve audited?

    Contrary to conventional wisdom, the Federal Reserve is extensively audited. Politicians on the left and right of a populist ... Read Full Answer >>
  5. Who decides when to print money in the US?

    The U.S. Treasury decides to print money in the United States as it owns and operates printing presses. However, the Federal ... Read Full Answer >>
  6. Why do some people claim the Federal Reserve is unconstitutional?

    The U.S. Constitution does not mention the need for a central bank, nor does it explicitly grant the government the power ... Read Full Answer >>

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