This post could be much clearer if the author was more clear about what the actual mechanics of what the Fed does. When they raise or lower rates, it’s not like they publish a number and that’s the new rate. Rather the Fed Open Market Committee goes into the market and buys or sells bonds until the rate hits their target.
So I have to admit I’m not sure I understand the distinction being made between banks extending credit to the govt or the private sector.
- Yield (Curve) Control ("FOMC goes into the market and buys or sells bonds until the rate hits their target" - the BOJ does this) with
- the FED interest rate (the rate which banks have to pay to borrow money from the FED)
Just check the bond yield of various US govt bonds (e.g. here: https://finance.yahoo.com/quote/%5EFVX), they vary all the time and are not necessarily close to the FED rate
The discount rate is the rate at which banks pay when they go to the discount window to borrow money. This is simply set and posted by the Fed. Borrowing at the discount window is a backstop for banks and not a typical part of their operations and not the usual lever of monetary policy.
The Fed Funds rate is the rate which banks will lend to each other overnight on the Fedwire. This is the rate the Fed targets in monetary policy. This target rate is achieved by the Fed conducting open market operations and doing repos or reverse repos with primary dealers. Open market operations are literally the Fed going into the market and literally entering repurchase agreements for Treasury securities. I understand that they are really buying and selling money, not the securities.
So I have to admit I’m not sure I understand the distinction being made between banks extending credit to the govt or the private sector.