Oh noes! Austrians explaining how the Fed lowers interest rates by expanding the money supply:
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[V]ery briefly: the Fed can control the quantity of reserves held by banks, and thus indirectly can control the price the banks charge each other for lending out reserves. If the Fed thinks banks are charging each other too much for reserves — in other words, if the actual fed funds rate is higher than the target — then the Fed will engage in an "open market operation," buying assets such as US Treasury bonds from banks. The Fed pays for these purchases by adding numbers to the accounts the selling banks have with the Fed.
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This is the precise point of entry for the new money that the Fed creates out of thin air. To repeat: When the Fed buys (say) $1 million in bonds from Bank XYZ, Bank XYZ surrenders ownership of the bonds but sees that its deposits of reserves at the Fed go up by $1 million. But the Fed didn't transfer this money from some other account. No, it simply increased the electronic entry representing Bank XYZ's total reserves on deposit. There is no offsetting debit anywhere in the banking system. Bank XYZ now has $1 million more in reserves, while no other bank has less. Bank XYZ is now free to go out and loan more reserves to other banks, or to make loans to its own customers. (In fact, due to the fractional-reserve system, the bank could make up to $10 million in new loans to customers.) The money supply has increased, putting upward pressure on prices measured in dollars.
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But back to our original theme, the injection of reserves obviously increases their supply and thus (other things equal) pushes down the rate Bank XYZ will charge other banks who might want to borrow reserves from it. The open market operation has thus achieved the Fed's goal of pushing the actual fed funds rate down to the desired target. Of course, going the opposite way, if the actual fed funds rate were too low, the Fed would sell assets to the banks, thereby destroying some of the total reserves in the system.
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There are many other examples where the Austrians make it perfectly clear that the Fed manipulates the money supply to hit the Federal funds rate target.
This of course is all different from the discount rate, which is the rate the Fed itself charges institutions, which it can set to be anything it likes, but since 2003 had been set at 1% point above the fed funds target. But this was slashed to just 0.5% above the fed funds target in September. Plus, since the Fed can now take basically anything as collateral, the interest rate is essentially maxed at the discount rate, since if the actual fed funds rate rises above the discount rate, banks would switch to borrowing from the Fed itself rather than each other.