Fed's Discount Rate
The Federal discount rate is the amount of interest a central bank charges private banks for short-term loans.
Banks will often borrow from each other for short-term needs, with central banks like the U.S. Federal Reserve typically acting as a “lender of last resort.” As a result, it likes to keep its discount rate somewhere above what private banks are charging each other.
During a recessionary period, however, the Fed may lower the discount rate to boost the money supply, thereby making it cheaper for commercial banks to borrow money, which helps stabilize the broader economy. It may also change other policies to encourage direct borrowing, such as extending the term on loans.
Monetary policy is a central bank’s actions that influence the country’s money supply and the overall economy.
The business cycle refers to the fluctuations in economic activity that an economy experiences over a period of time. It consists of expansions, or periods of economic growth, and contractions, or periods of economic decline.
The Depository Trust Company, founded in 1973 and based in New York City, is one of the world's largest securities depositories.
The term “open market operations” refers to a monetary policy tool in which central banks buy and sell bonds to regulate the money supply in the economy. The United States employs open market operations through the Federal Reserve Bank.
Learn more about this monetary policy employed by central banks.
Kathy Lien discusses the much-debated quantitative easing (QE) policies of central banks and what impact Fed action specifically may have on the dollar over the next few months.
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