The discount rate—will it float?
Since the Federal Reserve adopted its new
reserves-oriented operating procedure on
October 6, 1979, the role of discount policy
has come under greater scrutiny both inside
and outside the System. Of special interest
has been the spread between the federal
funds rate and the discount rate. There is a
strong positive association between the federal
funds rate-discount rate spread and the
amount of reserve adjustment borrowing
from the Federal Reserve.
