Federal Reserve Operations in the United States

Functions of the Federal System in Control of Money Supply

The discount rate, according to the federal system, is the interest rate, which the Federal Reserve imposes on the loans it gives to Federal Banks that are troubled and need financial support. Processing of lending to the banks is done through the 'discount window', which in most cases is controlled by the Reserve Banks.

Factors influencing Federal Reserve to adjust discount rates

Discount rates provided by the Federal Reserve to the borrowing banks is in most cases used as tools in controlling the amount of money supply in the country's economy (Wiedemer & Baker, 2012). Currently, the Federal Reserve (Fed), uses the discount rate strategy widely and frequently, because of the nature of the tool, which is simple to implement and convenient for the public. In most cases, two factors will lead to...
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