Discount rate
The rate the Federal Reserve charges banks that borrow directly from it, set by the regional Reserve Banks rather than by the FOMC.
The discount rate applies to loans made directly by a Federal Reserve Bank to a depository institution through what is called the discount window. It is deliberately set above the target for the federal funds rate, so borrowing there is more expensive than borrowing in the market, and it functions as a ceiling and a backstop rather than as an ordinary funding source.
It is set differently from the funds rate, and the distinction is a real one rather than trivia. Each regional Reserve Bank's board of directors proposes its discount rate and the Board of Governors approves it, whereas the funds rate target is set by the Federal Open Market Committee. The requests and approvals are published, and dissenting regional proposals can be an early indication of shifting views.
Its other significance is stigma. Institutions have historically avoided the discount window for fear that borrowing signals distress, which is why usage spikes are read closely during periods of financial stress and why the Federal Reserve has repeatedly tried to normalise its use.
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