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516).. This will allow banks to obtain the cash they need to ease the borrowing of money between banks and consumers. By reducing the discount rate, and not the federal funds rate, which is the interest rate banks charge one another for overnight loans, the Fed quickly injects liquidity into the banking system (Mankiw, Macroeconomics, Chpt. 11, pg. 312). This will increase the monetary base and money supply, to help ease the credit crunch in housing and mortgage lending, to stimulate moderate growth over time (see graph on page 2).
Only time will tell if the Fed rate cuts will help restore confidence in the U...
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