o If the Fed sets the discount rate below the federal funds rate, banks will borrow from the Fed and will end up with ____ reserves. More o If the Fed sets the discount rate _____ the federal funds rate, banks will choose not to borrow from the Fed. For instance, use of the Fed's discount window soared in late 2007 and 2008, as financial conditions deteriorated sharply and the central bank took steps to inject liquidity into the financial system. In August 2007, the Board of Governors cut the primary discount rate from 6.25% to 5.75%, The Federal discount rate is the interest rate the Federal Reserve charges banks to borrow funds, while the federal funds rate is the rate banks charge each other. The Fed discount rate is set by the Federal Reserve’s board of governors, while the federal funds rate is set by the Federal Open Markets Committee.