What is the difference between the discount rate and the fed funds rat...

The level of interest rates are determined by a number of factors. Including:

• The level of economic activity.
• The supply and demand for capital
• The level of risk perceived to be in the market.

The money supply is controlled by the Federal Reserve Board largely through open market operations. Open market operations consist of the FRB buying and selling Treasury and mortgage backed securities in the secondary market. When the Fed buys securities it increases the money supply and lowers rates. This has a stimulating effect on the economy. When the FRB is a net seller of securities it is removing money from the banking system and interest rates will increase as a result. The discount rate is the interest rate that the Federal Reserve Board charges member banks on loans made directly by the FRB. The Federal Funds rate on the other hand is the rate banks charge each other for short term loans. These loans are typically overnight or for short periods of time. The Federal funds rate is NOT controlled by the Federal; Reserve Board.  The actual rate is determined by the marketplace. The Fed does set a range or target for what it thinks the fed funds rate should be. However, the borrowing and lending banks ultimately determine the rate.