Description
The US Discount Rate is the interest rate set by the Federal Reserve (Fed) that applies to loans made to commercial banks and other depository institutions. It is a key tool used by the Fed to influence monetary policy, control inflation, and manage economic growth. A lower discount rate typically signifies an expansionary monetary policy, encouraging borrowing and spending, while a higher rate indicates a contractionary policy, discouraging borrowing and spending.
The discount rate is determined by the Federal Reserve Board of Governors and is usually set above the federal funds rate. It includes the Primary Credit Rate, Secondary Credit Rate, and Seasonal Credit Rate, applied to borrowing institutions based on their creditworthiness and the purpose of the loan.
The discount rate can be updated by the Federal Reserve Board of Governors at any time, but changes are generally announced during Federal Open Market Committee (FOMC) meetings, which occur eight times per year.