Federal Reserve System Overview

An increase in reserve requirements leads to a decrease in interest rates.

A decrease in reserve requirements leads to an increase in supply of funds.

The Federal Reserve controls both the federal discount rate and the federal funds rate.

The federal discount rate is the interest rate banks charge each other for overnight loans.

Banks borrow from other banks to meet reserve requirements.

The Federal Open Market Committee sets the target for the federal funds rate.

Long-term interest rates respond directly to the Federal Reserve's rate adjustments.

When the Fed raises or lowers either rate, it indicates an overall view of the economy.

Lenders do not make corresponding changes to interest rates based on changes by the Fed.

An increase in reserve requirements leads to an increase in funds available for investment.