Discount rates, the interest rate that commercial banks paid when borrowing money from a reserve bank, were intended to fluctuate.
The most crucial tool of monetary policy at the time was the determination of a unique discount rate suitable for each District. The Federal Reserve must implement monetary policy "so as to effectively achieve the goals of maximum employment, stable prices, and moderate long-term interest rates," according to the Federal Reserve Act. 1 Even though the legislation specifies three different objectives for monetary policy, the dual mandate for the Fed's monetary policy is more often used. The Federal Reserve must carry out monetary policy "so as to effectively achieve the goals of maximum employment, stable prices, and moderate long-term interest," according to the Federal Reserve Act.
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