What is the Discount Rate?

The Discount Rate can actually have multiple meanings, but the most prevalent one is in regards to the minimum interest rate the Federal Reserve will charge for lending to commercial banks.

The Federal Reserve sets the discount rate in an effort to discourage or encourage commercial banks to borrow, depending on the economic conditions. The discount rate also refers to the rate used to calculate the present value of future cash flows, as part of Discounted Cash Flow (DCF) analysis.