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Federal Discount Rate

What is the 'Federal Discount Rate'

The federal discount rate is the interest rate set by the Federal Reserve on loans offered to eligible commercial banks or other depository institutions as a measure 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. Next Up Discount Window Reserve Ratio Reserve Requirements Adjustment Credit

Explaining 'Federal Discount Rate'

Depository institutions and commercials banks that are in generally sound financial condition are eligible to borrow from their regional Federal Reserve banks at a primary credit, or discount, rate. These loans are normally extended on an overnight basis for the purpose of banks meeting short-term liquidity needs. Funds for commercial banks borrowed from the Fed to improve their money supply are processed through the discount window, and the rate is reviewed every 14 days. The federal discount rate is one of the most important indicators in the economy, as all other interest rates move up and down with it.

Federal Reserve Monetary Tools

The federal discount rate is used as a tool to either stimulate (expansionary monetary policy) or rein in (contractionary monetary policy) the economy. A decrease in the discount rate makes it cheaper for commercial banks to borrow money, which results in an increase in available credit and lending activity throughout the economy. Conversely, a raised discount rate makes it more expensive for banks to borrow and thereby diminishes the money supply while retracting investment activity.


Further Reading


Discount rate changes and security returns in the US, 1962–1991
www.sciencedirect.com [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …

Discount rate changes and the foreign exchange marketDiscount rate changes and the foreign exchange market
www.sciencedirect.com [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …

Federal discount rate policy, the shadow price of capital, and challenges for reformsFederal discount rate policy, the shadow price of capital, and challenges for reforms
www.sciencedirect.com [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …

Modelling federal reserve discount policyModelling federal reserve discount policy
link.springer.com [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …

Discount rate for long-term Forest Service investmentsDiscount rate for long-term Forest Service investments
academic.oup.com [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …

Stock prices and economic newsStock prices and economic news
www.nber.org [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …

A primer on the major issues relating to the discount rate for evaluating national energy optionsA primer on the major issues relating to the discount rate for evaluating national energy options
books.google.com [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …

Why do T-bill rates react to discount rate changes?Why do T-bill rates react to discount rate changes?
www.jstor.org [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …

Discount rate changes, stock market returns, volatility, and trading volume: Evidence from intraday data and implications for market efficiencyDiscount rate changes, stock market returns, volatility, and trading volume: Evidence from intraday data and implications for market efficiency
www.sciencedirect.com [PDF]
… Returns for these indices are obtained from the Federal Reserve Board. ' … Stock returns and interest rate changes are examined for 15 days before and 15 days after a two … In most cases, discount rate changes are announced in the afternoon following the stock market close or in …


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