- The discount rate is an economic measure of the pure
time value of money. Frequently news media use the term ``discount
rate'' to denote the Federal Reserve Rediscount Rate, the
rate the Federal Reserve charges banks to borrow short-term funds.
This number has little to do with the true prevailing discount rate,
which is set by the expectations of borrowers and lenders about the
supply of and demand for money, the prospects for business,
expectations of inflation, and a host of other factors.