What is the Difference Between the Discount Rate and the Fed Funds Rate?
The Federal Reserve lowered the discount rate this morning and not the Fed Funds rate, which remains at 5.25 percent. The discount rate is the rate that the Fed charges to lend money directly to banks and other lending institutions. It is also the rate that Jim Cramer have been screaming for the Fed to cut. The Fed Funds rate on the other hand is the rate that banks pay to borrow from the marketplace and the rate that affects credit cards, home equity lines of credit, car loans and other consumer loan rates.. The central bank’s move today narrowed the spread between the primary credit rate and the FOMC target rate to 50 basis points. They are also now allowing the terms of financing to extendas long as 30 days, renewable by the borrower. Federal Reserve Alters Bias, Warns of Strong Downside Risks In addition to the change in the discount rate, the Federal Reserve also altered their economic outlook to acknowledge the recent turmoil in the credit markets. It was only 2 days ago that Fed
