on the federal funds rate, wiki states “In the United States, the Fed Funds Rate is the interest rate at which p_rivate_ depository institutions (mostly banks__) lend balances (federal funds) at the Federal Reserve to other depository institutions, usually overnight.[1] It is the interest rate banks charge each other for loans.[2] Changing the target rate is one way the Chairman of the Federal Reserve can influence the supply of money in the U.S. economy.[3]. The Federal funds target rate is determined by a meeting of the members of the Federal Open Market Committee which occurs every two months.”
then…
“The bank can borrow the requisite funds from another bank that has a surplus in its account with the Fed. The interest rate that the borrowing bank pays to the lending bank to borrow the funds is negotiated between the two banks…”
“I__nterbank borrowing is essentially a way for banks to quickly raise__ capital. For example, a bank may want to finance a major industrial effort but not have the time to wait for deposits or interest (on loan payments) to come in.”
"Another way banks can borrow funds to keep up their required reserves is by taking a loan from the Federal Reserve itself at the discount window."
this wiki entry seems confusing to me because i cannot see where, with the exception of the discount window mentioned above, how interbank bank lending for surples reserves held at teh federal reserve ‘inflates’ the money supply.
wiki says of the discount window - "It is d_istinct from the_ federal funds rate or its equivalents in other currencies, which determine the rate at which banks lend money to each other. In recent years, the discount rate has been approximately a percentage point above the federal funds rate (see Lombard credit). Because of this, it is a relatively unimportant factor in the control of the money supply …"
for clarification…if according to wiki, the discount window (if it truly exists) doesnt affect the money supply in any significant way…and as i understand it, the federal funds rate only ‘regulates’ interbank lending…how does the fed funds rate affect inflation?
was there something in the wiki article that i am missing?
thanks