The economy
Central bank
The institution that sets a country’s benchmark interest rate and manages its money supply.
How it works
Central banks target price stability, and in some cases employment as well. Their main tool is the short-term policy rate, which propagates through the whole yield curve.
Because the discount rate underneath every valuation is anchored on their decisions, they influence the price of nearly every asset that exists.
Related terms
- Interest rateThe cost of borrowing money, set at the short end by the central bank.
- Quantitative easingA central bank buying bonds with newly created money to lower long-term rates.
- Yield curveA chart of government bond yields across maturities, from months to decades.
- Discount rateThe rate used to convert future money into what it is worth today.
- FOMCThe committee within the US Federal Reserve that sets American interest-rate policy.
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