Fed Cuts Discount Rate

Guide Note:

The discount rate is an interest rate that banks pay on loans provided to them by their regional federal reserve bank. Banks are offered three discount rates: primary credit, secondary credit and seasonal credit. Discount rates are established by the board of directors of a regional reserve bank and approved by the Federal Reserve.

Fast Facts:

1. In June 2008, the federal reserve approved a 0.75% discount rate cut for the federal banks of Boston, New York, Philadelphia, Cleveland, Richmond, Dallas, San Francisco and St. Louis¹
2. Rate cuts are often implemented to prevent a shortening of the supply of money
3. The primary credit rate applies to very short-term loans
4. If a bank does not qualify for the primary credit rate, it may apply for the secondary credit rate

• As of June 2008 the three discount rates are:
  • Primary credit rate: 2.25%
  • Secondary credit rate: 2.75%
  • Seasonal credit: 2.35%