ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -The federal discount rate is the interest rate the Federal Reserve (Fed) charges banks to borrow funds from a Federal Reserve bank. The Fed discount rate is set by the Fed’s board of governors, and can be adjusted up or down as a tool of monetary policy.

Detailed explanation-2: -The Federal Open Markets Committee (FOMC) sets the federal funds rate-also known as the federal funds target rate or the fed funds rate-to guide overnight lending among U.S. banks. It’s set as a range between an upper and lower limit. The federal funds rate is currently 4.50% to 4.75%.

Detailed explanation-3: -The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank’s lending facility-the discount window.

Detailed explanation-4: -Basic Info. US Discount Rate is at 4.75%, compared to 4.75% the previous market day and 0.25% last year. This is higher than the long term average of 1.94%.

Detailed explanation-5: -When the Federal Reserve increases the discount rate banks become more cautious and tend to hold extra reserves. Because banks hold extra reserves, this money will not increase through multiple deposit creation and the money supply will decrease.