There are two key interest rates used by the Federal Reserve in the U.S. Those interest rates are the federal funds rate and the discount rate. These interest rates are used to implement and control the monetary policy of the U.S.
The federal funds rate is the overnight interest rate that banks charge each other for borrowing. The discount rate is the interest rate that the Federal Reserve charges banks to borrow from them. If the Federal Reserve lowers one or both of these interest rates, then the cost of borrowing drops and credit eases up and becomes more available in the economy. If the Federal Reserve raises one or both of these interest rates, the opposite happens. This is the basis of monetary policy.
During the Great Recession, which began in 2008, the Federal Reserve has kept these key interest rates low in order to try to stimulate borrowing by small businesses from banks and other financial institutions.
The Federal Reserve lowered the federal funds rate but kept the discount rate the same at their last meeting.
