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>Because the Fed is the Fed, it's almost alway going to be the cheapest counterparty to borrow from. Wrong. It used to be this way but they switched it up in

>Because the Fed is the Fed, it's almost alway going to be the cheapest counterparty to borrow from. Wrong. It used to be this way but they switched it up in 2003.[1] The Fed is considered the "lender of last resort" and they manipulate the interest rates to keep it that way. They used to target the Fed Funds rate to be higher than the discount rate. But that didn't make sense if you think about the system the government wanted (for a while it was thought that embarrassment/the risk of increased oversight was enough of a barrier that the lower rate was OK). 1. https://datawrapper.dwcdn.net/0jhQV/4/ https://datawrapper.dwcdn.net/0jhQV/4/

JumpCrisscross 7y ago
> Wrong. It used to be this way but they switched it up in 2003 There was no "switching up". The relationship between the discount [1] and Fed Funds [2] rates is a lever for tightening and loosening monetary policy. Over the Fed's lifespan, the discount rate has typically been higher than the Fed Funds rate, to dissuade the former's use. And neither is the topic of discussion, which are the repo reference rates [3]. All that said, yes, when the Fed is tightening one may find market rates cheaper than the Fed's. [1] https://www.federalreserve.gov/monetarypolicy/discountrate.htm https://www.federalreserve.gov/monetarypolicy/discountrate.h... [2] https://www.bankrate.com/rates/interest-rates/federal-funds-rate.aspx https://www.bankrate.com/rates/interest-rates/federal-funds-... [3] https://www.newyorkfed.org/markets/treasury-repo-reference-rates https://www.newyorkfed.org/markets/treasury-repo-reference-r...