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What is Prime Rate vs. Discount Rate Explained about?
The prime rate and discount rate are both interest rates set by the Federal Reserve that impact consumer lending. The prime rate is used as a baseline for determining interest rates on consumer loans, while the discount rate influences how much banks pay to borrow from each other. Decreases in the prime rate typically encourage more borrowing. The discount rate determines how much money is available in the economy, as higher rates discourage bank borrowing and lower rates encourage more lending.
- Author
- Teffi Boyer Montoya
- Language
- EN