What term refers to the interest rate charged by Federal Reserve Banks to member banks?

The term that refers to the interest rate charged by Federal Reserve Banks to member banks is indeed the discount rate. This is the rate at which eligible depository institutions, such as banks, can borrow funds from the Federal Reserve, typically on a short-term basis.

The discount rate plays a crucial role in monetary policy because it influences the overall availability of credit and interest rates throughout the economy. When the discount rate is lowered, borrowing becomes cheaper for banks, which may lead them to lend more to businesses and consumers, stimulating economic activity. Conversely, an increase in the discount rate can help to control inflation by making borrowing more expensive.

Understanding the discount rate is essential for grasping how the Federal Reserve influences the banking system and the broader economy through its monetary policy tools. Other rates, such as the prime rate or fed funds rate, while relevant to the overall interest rate environment, do not specifically denote the borrowing rate set by the Federal Reserve for member banks.