Discount Rate vs. Fed Funds Rate: What’s been changed and what stayed the same.
The discount rate is the interest rate charged to commercial banks and other depository institutions on loans they receive from their regional Federal Reserve Bank's lending facility--the discount window. The Federal Reserve Banks offer three discount window programs to depository institutions: primary credit, secondary credit, and seasonal credit, each with its own interest rate. All discount window loans are fully secured. [Source: Federal Reserve]
Here is a graph that shows the 5 year history of discount window borrowing:
The federal funds rate is the interest rate at which depository institutions lend balances at the Federal Reserve to other depository institutions overnight. [Source: Federal Reserve]
So what did the Federal Reserve change? The press release outlined:
"At that meeting, the Committee left its target range for the federal funds rate [unchanged] at 0 to 1/4 percent and said it anticipates that economic conditions are likely to warrant exceptionally low levels of the federal funds rate for an extended period."
and
"The changes to the discount window facilities include Board approval of requests by the boards of directors of the 12 Federal Reserve Banks to increase the primary credit rate (generally referred to as the discount rate) from 1/2 percent to 3/4 percent."
The net effect of this is diminished, since borrowing at the Discount Window has been significantly reduced from the $400 billion dollar high to an elevated $100 billion.
Share on FacebookHow and why the heck are employers sandwiched between the insuror and the insuree?
Let’s take a look at a little history.
I’m going to summarize a great article, Health Insurance in the United States http://eh.net/encyclopedia/article/thomasson.insurance.health.us, however, I encourage you to read the article in its entirety.
The shift to employer based health insurance began during World War II and price controls that restricted employers from increasing wages to compete for labor. Exempt from the 1942 Stabilization Act was employee insurance plans. Therefore, employers used the plans as a way to differentiate themselves and attract desired employees that were in short supply. In addition, the Labor Relations Board and later the Supreme Court paved the way for unions to include insurance benefits in their “negotiations” with businesses. Finally the government made employer’s contributions to health insurance exempt from payroll tax as well as exempt from employee taxable income.
In sum, there is no magic to why employers are a conduit for employee healthcare. More to follow…
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