Editing Federal Reserve (section)

==== Discount Rate (Supply) ====
[[File:DISCOUNT RATE.png|thumb|366x366px|Discount Rate Diagram]]
A second supply targeting method is to charge the discount rate. Banks can borrow from each other or from the Fed. If they borrow from each other they they face the federal funds rate. If they borrow from the Fed they face the '''discount rate.''' Since 2003, Reserve Banks establish the primary credit rate at least every 14 days, subject to review and determination of the Board of Governors.

Federal Reserve Banks have three main lending programs for depository institutions — primary credit, secondary credit and seasonal credit. Primary credit is offered on a very short-term basis as a backup rather than a regular source of funding, and borrowers are not required to seek alternative sources of funds before requesting. Secondary credit is also short term and is offered to banks not eligible for primary credit. It is meant to get people back to normal market funding. Seasonal credit is available to relatively small depository institutions to meet regular seasonal funding needs.

As we can see, the discount rate is represented by the horizontal portion of the supply curve, and changes here will only have an effect if the market is in a state where the discount window rate is desirable. If this is the case, then lowering the discount rate lowers the federal funds rate and vice versa.