Discount Rate is the rate at which the FED lends directly to banks through its discount window

think of it as an emergency lending facility which the banks can use whenever they need funds

since banks can always get a loan at that rate - it caps the short-term interest rates

Illya Gerasymchuk 2025-07-31 10:27

the majority of liquidity is actually created in wholesale short-term debt markets

ON RRP addresses exactly that sector, thus setting the lower bound of the target interest rate corridor for the broader financial sector