Investment

» Normxxx - re "What is The Discount Rate?"

In response to re "What is The Discount Rate?" posted by tjg911:

So let me guess here, the FOMC rate, the rate the Fed changes or leaves unchanged at their meetings, this rate is the rate the Fed charges Federal Reserve banks when they borrow?

Wrong. The Fed Funds rate is the rate that the Federal Reserve allows banks to charge each other for short term loans (what you are calling the FOMC rate). This is usually up to 1% less than the minimum Federal Discount rate (which was the rate changed yesterday), which is what the Fed charges on its loans to generally less credit worthy banks. The Fed Funds rate is controlled by Open Market operations (buying and selling government bonds) and the Fed Discount rate is controlled directly. Because the market has been so wild lately (as the Fed buys huge quantities of bonds) that the Federal Funds rate has fluctuated all the way to zero for brief periods, some out there contend that the Fed has effected a "stealth" Fed Funds rate cut already.

The discount rate is the rate commerical banks pay depending upon which of the 3 categories they fall into, that does seem clear.

Correct. To the Fed.

I know. Clear as mud. But it wasn't planned; it just 'grewed' that way.

Normxxx    
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-- posted by Normxxx