Fed rate cuts are generally tailored to demand shocks that cause a slowdown in consumer and business activity. The discount rate helps steer the Fed’s monetary policy. Fed slashes key rate to near zero Ben Bernanke & Co. cite the weakness in the economy and the reduced inflation threat as justification to cut rates to a record low range of 0% to 0.25%. When the Fed lowers the discount rate, this sends a signal to banks that: A. the Fed is about to raise the prime rate. Thus far, though, the coronavirus scare has … So by raising or lowering the discount rate, the Fed can basically force banks to keep more money in reserve, which lowers the amount of money in circulation—the money supply. The Federal Reserve committed Wednesday to do more to help the US economic recovery, promising more asset purchases and lower interest rates for even longer than it previously expected. Fed sees interest rates staying near zero through 2022, GDP bouncing to 5% next year Published Wed, Jun 10 2020 2:00 PM EDT Updated Wed, Jun 10 2020 4:59 PM EDT Jeff Cox @jeff.cox.7528 @JeffCoxCNBCcom The Fed lowers the fed funds rate to stimulate the economy by making it cheaper to borrow money. Then the Fed lowers interest rates when the economy is weak. At the beginning of the last recession, the Fed lowered the discount rate to help stressed financial institutions cover costs. This could be considered contractionary monetary policy. At the height of the financial crisis in 2008, loans with the discount rate were as long as 90 days. The Federal Reserve discount rate is the rate that the U.S. central bank charges member banks to borrow from its discount window to maintain the bank's cash reserve requirements. On March 16, 2020, the Federal Reserve Board of Governors lowered the rate to 0.25% in response to the COVID-19 coronavirus outbreak. The idea is that lower interest rates will encourage people to take out new loans, refinance existing debt and spur the economy. A high discount rate causes loans to be more expensive and encourages people to save more money. In those situations, short-term loans tend to get a bit longer. Rates on credit cards and home equity lines of credit track the fed funds rate … The Bank of … If the economy is weak, the Fed will lower interest rates to encourage businesses and consumers to buy and borrow. A lower federal funds rate means: B. the Fed is about to lower the prime rate. The Federal Reserve cut its key interest rate to near zero — a dramatic move not seen since the depths of the 2008 financial crisis.