Final answer:
The Federal Discount Rate is the interest rate charged by the Federal Reserve to commercial banks and depository institutions on loans received from the discount window. It consists of three programs with different interest rates: primary credit, secondary credit, and seasonal credit.
Step-by-step explanation:
The Federal Discount Rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility called the discount window. The Federal Reserve offers three discount window programs: primary credit, secondary credit, and seasonal credit, each with its own interest rate. These rates are set by each Reserve Bank's board of directors, subject to review and determination by the Board of Governors of the Federal Reserve System.
The primary credit rate, also referred to as the discount rate, is set above the usual level of short-term market interest rates. The secondary credit rate is higher than the primary credit rate, and the rate for seasonal credit is an average of selected market rates.
It is important to note that the discount rate is separate from the federal funds rate, which is the specific interest rate the Fed targets.