Interest rates are fees paid in order to utilize capital and are expressed as a percentage. In the U.S., there are two critical interest rates that are set by the Federal Reserve: the two mechanisms that influence monetary policy are the Federal Funds Rate and the Discount Rate.
After cutting the interest rate to 1% in October of 2008, the Fed cut the interest rate again on December 16, 2008, by another 3/4 of a percent, bringing the rate down to an historic 0.25%.Wall Street Journal: Fed Cuts Rates to Historic Low (December 16, 2008)
Interest Calculations
The Calculation of Simple Interest:
- (Interest Rate * initial balance of the loan) * number of time intervals elapsed
References
Fast Facts
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Fact:
0.25% is the lowest the Federal interest rate has ever been since the Fed started publishing the target in 1990Wall Street Journal: Fed Cuts Rates to Historic Low (December 16, 2008)
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Monetary policy
Measures taken by the Federal Reserve to influence cost and availability of money
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Fact:
Federal Funds Rate is the interest rate charged on loans by the Federal Reserve and depository institutions to other depository institutions
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Fact:
Discount Rate is the interest rate charged on short-term loans by a central bank to depository institutions
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Federal Funds Rate
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Discount Rate
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Federal Reserve Chairman
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Fact:
Federal Reserve system created after the Federal Reserve Act of 1913
