What is the interest rate charged on loans between member banks of the Federal Reserve called?

The interest rate charged on loans between member banks of the Federal Reserve is known as the Fed funds rate. This rate is crucial for the banking system as it influences the overall economy, affecting other interest rates and the money supply. The Fed funds rate is determined through the trading of reserves among banks and is a key tool used by the Federal Reserve to control monetary policy.

When banks lend to each other, they do so at this rate, which banks use as a benchmark for various other rates that impact consumer and business loans. This makes the Fed funds rate a pivotal figure in understanding liquidity in the banking system and the broader financial environment.

In contrast, the other options refer to different types of interest rates and serve distinct purposes in the financial system. The base rate generally refers to a rate set by central banks that influences borrowing costs, the prime rate is the interest rate that commercial banks charge their most creditworthy customers, and the discount rate is the interest rate charged to commercial banks and other depository institutions for loans received from the Federal Reserve's discount window. Understanding the specific role of the Fed funds rate is essential in grasping how economic policies are implemented and how they affect banking operations.