Bonds

What is The Interest Rate

The interest rate charged by the Fed on loans given to banks is called the discount rate.

The interest rate for loans between banks is called the federal funds rate.

In order to adjust the primary interest rate, the Fed occasionally changes the discount rate. This change causes a chain reaction, which at the end of it the interest rates that the banks charge their customers also change.

The following graph illustrates the discount rate in the US since 1990.

It can be seen from the table that the interest rate has been reduced since 1990.

Table 1.1: Development of the Discount Rate since 1990 (%)

Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec
1990 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 8.00 7.75 7.50 7.00
1991 6.75 6.25 6.00 5.75 5.75 5.75 5.75 5.50 5.25 5.50 4.75 4.00
1992 4.00 4.00 4.00 3.75 3.75 3.75 3.25 3.25 3.00 3.00 3.00 3.00
1993 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00 3.00
1994 3.00 3.25 3.50 3.75 4.25 4.25 4.25 4.75 4.75 4.75 5.50 5.50
1995 5.50 6.00 6.00 6.00 6.00 6.00 5.75 5.75 5.75 5.75 5.75 5.50
1996 5.25 5.25 5.25 5.25 5.25 5.25 5.25 5.25 5.25 5.25 5.25 5.25
1997 5.25 5.25 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50
1998 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.50 5.25 5.00 4.75 4.75
1999 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.00 5.25 5.25 5.50 5.50
2000 5.50 5.75 6.00 6.00 6.50 6.50 6.50 6.50 6.50 6.50 6.50 6.50
2001 6.00 5.50 5.00 4.50 4.00 3.75 3.50 3.00 2.50 2.00 1.75 1.75
2002 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.75 1.25 1.25
2003 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00 1.00
2004 1.25 1.25 1.25 1.25 1.25 1.50 1.75 1.75 1.75 1.75 2.00 2.25
2005 2.25 2.50 2.75 2.75 3.00 3.25 3.25 3.50 3.75 3.75 4.00 4.25
2006 4.50 4.50 4.75 4.75 5.00 5.25 5.25 5.25 5.25 5.25 5.25 5.25
2007 5.25 5.25 5.25 5.25 5.25 5.25 5.25 5.25 4.75 4.50 4.50 4.25
2008 3.00 3.00 2.25 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00 2.00
What is The Interest Rate561What is The Interest Rate