Since this is the foundation on which all other interest rates are based, adjustments in the discount rate affects the interest rates which institutions charge (and pay) their customers. In addition to the discount rate, the Fed also controls the Federal Funds rate, which is the rate charged by one depository institution to another on a short-term (usually overnight) basis (Cavaletti & Blazina, 1998, p. 12).
The actions of the Fed, particularly with regard to interest rates, have a significant impact on the company. At several times during the past ten years (including 1994 and 2000-2001), the Fed increased and decreased interest rates frequently with the intention of slowing down the economy or accelerating the economy, respectively. By raising interest rates, the Fed hoped to increase the cost of funds to the point that businesses would slow down expansion plans and the economy would veer away from inflation.
The effect of the Fed's efforts can be seen in the changes in the prime rate which have mirrored the changes in the federal fund
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