What is the discount rate?

The discount rate refers specifically to the interest rate that the Federal Reserve charges commercial banks for loans obtained through the discount window. This rate is a critical tool used by the Fed to influence the money supply and overall economic conditions. When banks borrow at the discount rate, they typically do so to meet reserve requirements or to manage liquidity. The discount rate can also affect how much banks choose to lend to consumers and businesses, which in turn impacts the overall economy.

The other options do not accurately represent the discount rate. For instance, the maximum interest rate a bank can charge is regulated by various laws and is not synonymous with the discount rate. The average rate of interest for consumer loans encompasses a wide range of lending products, which are determined by different factors beyond the Federal Reserve's influence. Lastly, the interest rate for savings accounts is generally determined by market conditions and competition among banks, rather than being directly related to the discount rate offered by the Federal Reserve.