<p>The federal funds rate is the interest rate that banks charge each other to borrow or lend excess reserves overnight. The Fed sets a range for this band (typically 0.25% wide) and the rate itself (called Fed Funds Effective rate) is allowed to float freely within the boundaries of the band.</p>
<p>The use of the discount window was discouraged by the Fed itself until around 2003. Even in the financial crisis of 2008, banks were <a href="https://www.federalreserve.gov/econres/notes/feds-notes/stigma-and-the-discount-window-20171219.htm" rel="nofollow noreferrer">reluctant to borrow</a> at the Fed due to the stigma associated with this.  The rate is higher than interbank, and a bank frequently only uses it as a last resort. There is little use of this rate in normal times. For this reason, it should not make a noticable difference if the Fed were to change the discount window frequently or set it at odd levels.</p>

CC BY-SA 4.0
2022-03-20T20:58:10.587Z
2022-03-20T20:58:10.587Z
Alex
<p>Recently the Federal Reserve raised interest rates by 0.25%. It seems to me that in the modern era there is no reason to pick a round number like 0.25%. It also seems to me that they could / should fine tune interest rates by increasing them a little bit every week. Say by 0.05%. I understand in the past, that you could not have have 14 way calling but those days are gone. For example, we have Zoom and Skype.</p>
<p>Is there something I am missing?</p>

CC BY-SA 4.0
2022-03-18T19:08:08.337Z
That's the mid rate of an upper and lower band. The fed funds effective rate is varying constantly.
Alex
CC BY-SA 4.0
2022-03-18T19:52:43.733Z
@Alex However, they also raised the discount rate which is constant over a small time interval.
Bob
CC BY-SA 4.0
2022-03-18T20:26:32.747Z
Until about 2003, the fed itself discouraged the use of the discount window. It's still considered as a stigma to use it. The rate is higher than interbank, and a bank usually only needs that liquidity as a last resort. There is little use of this rate in normal times, so I doubt it makes a difference to change this frequently or set it at odd levels.
Alex
CC BY-SA 4.0
2022-03-19T13:14:47.673Z
@Alex If you were to post your comments as an answer, I would accept the answer.
Bob
<interest-rate><monetary-policy><central-banking>
The Fed and Raising Interest Rates
Bob
# The Fed and Raising Interest Rates

(Asked by: username_0 on 2022-03-18)

Recently the Federal Reserve raised interest rates by 0.25%. It seems to me that in the modern era there is no reason to pick a round number like 0.25%. It also seems to me that they could / should fine tune interest rates by increasing them a little bit every week. Say by 0.05%. I understand in the past, that you could not have have 14 way calling but those days are gone. For example, we have Zoom and Skype.

Is there something I am missing?

**Tags:** interest-rate, monetary-policy, central-banking

> **Comments:**
> **username_1**: That's the mid rate of an upper and lower band. The fed funds effective rate is varying constantly.  
> **username_0**: @username_1 However, they also raised the discount rate which is constant over a small time interval.  
> **username_1**: Until about 2003, the fed itself discouraged the use of the discount window. It's still considered as a stigma to use it. The rate is higher than interbank, and a bank usually only needs that liquidity as a last resort. There is little use of this rate in normal times, so I doubt it makes a difference to change this frequently or set it at odd levels.  
> **username_0**: @username_1 If you were to post your comments as an answer, I would accept the answer.  

---

## 1 answers

### Answer by username_1 on 2022-03-20. Score: 0 | Accepted answer

The federal funds rate is the interest rate that banks charge each other to borrow or lend excess reserves overnight. The Fed sets a range for this band (typically 0.25% wide) and the rate itself (called Fed Funds Effective rate) is allowed to float freely within the boundaries of the band.

The use of the discount window was discouraged by the Fed itself until around 2003. Even in the financial crisis of 2008, banks were [reluctant to borrow](https://www.federalreserve.gov/econres/notes/feds-notes/stigma-and-the-discount-window-20171219.htm) at the Fed due to the stigma associated with this. The rate is higher than interbank, and a bank frequently only uses it as a last resort. There is little use of this rate in normal times. For this reason, it should not make a noticable difference if the Fed were to change the discount window frequently or set it at odd levels.


---

