When the Fed pays interest on excess reserves held at Fed banks, the interest rate used is the discount rate.

Question

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When the Fed pays interest on excess reserves, the interest rate used is the interest on excess reserves (IOER) rate, which is generally set slightly below the target federal funds rate. The discount rate is the interest rate at which banks can borrow directly from the Fed in case of emergencies.

When the Fed Pays Interest on Excess Reserves Held at Fed