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Econoday | Resource Center | Fed Statistics
Short Term Perspective The gap between the fed funds rate and the discount rate narrowed in 1998 when the Fed eased monetary policy quickly in order to alleviate the burdens of the Russian and hedge fund financial crises. The current differential between the two rates is not unusual by historical comparison.
Long Term Perspective The Federal Reserve also can tighten or loosen monetary policy by changing the discount rate (the rate at which banks can borrow from the Federal Reserve's discount window). Few banks actually borrow from the Fed since it signals poor reserve management. As a consequence, the discount rate is less meaningful as an indicator of Fed policy. Yet, financial market participants sometimes believe the Fed is trying to send a message when they change the discount rate at the same time as the funds rate. Old habits die-hard.