what is the federal discount rate 
the discount rate is the interest rate set by the federal reserve fed on loans extended by the central bank to commercial banks or other depository institutions adjusting the discount rate allows central banks such as the fed to reduce liquidity problems and the pressures of reserve requirements control the supply of money in the economy and basically assure stability in the financial markets this is not to be confused with the federal funds rate which is instead the target interest rate for overnight interbank lending where commercial banks borrow and lend excess reserves between each other the target is set by the fed but the actual fed funds rate is determined by the market s supply and demand for overnight loans the discount rate is set higher than the fed funds rate and is intended to be used as a last resort for banks who are unable to borrow in the interbank market the secondary discount rate is an even higher discount window rate of interest for fed loans made to banks that are struggling with liquidity 