US Banks
General Questions
Federal Funds Rate vs Discount Rate
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Federal Funds Rate vs Discount Rate
The federal funds rate is the interest rate at which banks can lend or borrow money from the Federal Reserve, while the discount rate is the interest rate at which banks can borrow money directly from the Federal Reserve. The federal funds rate is typically used as a benchmark for other interest rates in the economy, while the discount rate is primarily used as a tool for monetary policy by the Federal Reserve.
Federal Funds Rate | Discount Rate |
|---|---|
The interest rate at which banks can lend or borrow money from the Federal Reserve | The interest rate at which banks can borrow money directly from the Federal Reserve |
Typically used as a benchmark for other interest rates in the economy | Primarily used as a tool for monetary policy by the Federal Reserve |
The Federal Reserve uses open market operations to influence the federal funds rate | The Federal Reserve sets the discount rate |
It is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight | It is the interest rate that banks are charged when they borrow money from the Federal Reserve. |
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