The Fed exerts some control over the spread between the discount rate and the federal funds rate through the supply of reserves.

Question

Quizplus · Accepted Answer

The Federal Reserve influences the spread between the discount rate (the interest rate it charges on loans to banks) and the federal funds rate (the interest rate banks charge each other for overnight loans) by adjusting the supply of reserves in the banking system. By increasing or decreasing the amount of reserves, the Fed can affect the federal funds rate, which in turn can lead to changes in the spread between these two rates.

The Fed Exerts Some Control Over the Spread Between the Discount