Pending FRB Discount Rate Policy | M-001

[DonTrillions]

Category: Monetary Policy
Affected Parties: All Financial Institutions, FRB Treasury & Liquidity Divisions
Minting Required: N
Estimated Cost: N/A
Legal Basis: Federal Reserve Act (FRA) §§ 4, 5, 6, 8, 9, 11

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1. Purpose​

This Policy establishes the framework for determining, applying, and reviewing the Official Discount Rate of the Federal Reserve Bank of Redmont (FRB).
The Discount Rate serves as the reference yield for monetary operations, including Treasury Bill issuances, reserve remuneration, and liquidity lending, ensuring consistency and transparency across all FRB policies.

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2. Objectives​

• Provide a unified and transparent benchmark for all FRB interest-bearing operations.
• Support monetary stability and control systemic liquidity.
• Ensure alignment between the T-Bill market, reserve remuneration, and interbank lending rates.
• Enable flexible policy response to inflationary or deflationary pressures.

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3. Definition and Scope​

The Discount Rate is the nominal annualized interest rate at which the FRB:
(a) Lends funds or provides short-term credit to eligible Financial Institutions; and
(b) Determines yields and interest payable on FRB-issued instruments and deposits.

This rate forms the basis for:

• Treasury Bill yield calculations under Policy F-001.
• Interest on Excess Reserves under Policy R-001 §10.
• FRB repos, collateralized lending, and emergency liquidity facilities.

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4. Determination Framework​

Authority: The Federal Reserve Board, under FRA § 5, determines the Discount Rate.

Voting: A simple majority of Sitting Members constitutes approval. The DOC Secretary votes only to break ties.

Review Frequency:
The Discount Rate shall be reviewed once per calendar month by the Federal Reserve Board.
Interim reviews may be convened only by majority vote of the Board when significant monetary, liquidity, or price-stability conditions justify earlier action.

Adjustment Criteria:

• Inflation and price-stability indicators.
• Aggregate reserve levels across the banking system.
• Treasury Bill market demand and yield alignment.
• Overall liquidity and interbank funding conditions.

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5. Publication and Implementation​

• The FRB shall publish the current Discount Rate in the Monthly FRB Report.
• Any change must be announced publicly at least 48 hours prior to taking effect.
• The new rate shall apply to all new transactions and instruments issued thereafter.

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6. Application of the Discount Rate​

The prevailing Discount Rate shall determine:
(a) The yield on FRB Treasury Bills (Policy F-001 §3);
(b) The interest on Excess Reserves (Policy R-001 §10(c));
(c) The rate applied to FRB liquidity facilities and repos; and
(d) The discount applied to any collateralized borrowing by Financial Institutions.

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7. Transparency and Oversight​

• All rate decisions, supporting data, and Board votes shall be recorded and retained by the FRB Treasury Division.
• The Inspector-General shall maintain full audit access to these records in accordance with FRA § 8 (10)–(13).
• Congress may veto or suspend rate adjustments under FRA § 9.

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8. Continuity and Review​

This Policy remains in force under FRA § 11 until repealed or replaced by majority vote of the Board.
The FRB shall conduct an annual strategic review to ensure the Discount Rate continues to support economic stability and monetary objectives.