Video: Federal Discount Rate

In this informative lesson, Nick Palazzolo, CPA, demystifies the often-confused concepts surrounding the Federal Reserve and its monetary policy tools, particularly focusing on the federal discount rate. He starts with a primer on the independence and role of the Federal Reserve, established in 1913, distinguishing it from the federal government. Nick clearly explains the functions and differences between the federal discount rate and the federal funds rate, and how these rates impact banks, financial stability, and the broader economy. He uses accessible examples to clarify how these rates function in practice, such as the way a bank might borrow from the Federal Reserve and lend to customers. Nick also addresses the reserve requirement, illuminating its purpose and implications on economic activity and financial safeguarding. Throughout, Nick ensures the terminology is explained without over-reliance on potentially fleeting memorization, making sure that the fundamentals are clear and comprehended.

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Video Transcript

Instructor: Nick Palazzolo

Nick Palazzolo is head instructor of ExamPrep.ai CPA Review. Nick's teaching style is engaging & upbeat, combining practical Big 4 tax & assurance expertise with years of 1-on-1 coaching. His lessons are concise and emphasize what you need to know to pass. Whether you're a recent grad or working full-time, we’re confident you can conquer your CPA exams with Nick’s review.

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Okay, the Fed, the federal discount rate. Let's talk about this and get introduced. I'm not going to run through too many questions in this lesson like I do in other words, this is more just talking about everything, making sure you know the background and you don't have any misinterpretations of terms or concepts when we talk about the Fed. Let's start here.

The Fed, it also known as the Federal Reserve, could be known as The Fed. Much more abbreviated. It was created in 1913. Now, it is not controlled by the federal government.

This is something that people get confused by. It's not like the president can say, "Hey, Fed," I mean, okay, maybe they can in reality, but on paper, how the government's supposed to run? The Fed is independent, independent of the government. It can do whatever it wants.

Now, you might think that's kind of crazy. There's this independent body just kind of doing its own thing. That's how the system works. I'm not going to go too much into depth about that. But it was created in 1913, and the Fed is the entity that prints money and controls monetary policy.

And we'll see in a second. I'll talk about that on the next slide. The federal government controls fiscal policy. Don't worry about that. We'll go over that much more in depth on the next slide.

Now, this is just FYI, giving you a nice introduction, background. You don't need to memorize these by any means. I can guarantee that. We got twelve districts.

Now, each of these cities is where the office is located. But if I showed you a map, you don't need to know the map, no worries. The Richmond District takes over a bunch of states. St. Louis takes a bunch of states. Dallas,

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