“When the Fed creates dollars and gives them to banks ...”
Doesn’t the FED loan their created dollars to the banks and expect the banks to pay them back with interest?
The Fed creates and deposits dollars into the dealer bank accounts so they can bid on Treasury bonds. The only time these banks have to “borrow” money from the Fed is when their customers have drawn down their cash reserves below required levels (fractional reserve) and their fellow banks are also unable to lend them excess cash. When they borrow from their fellow banks it is at the Overnight Funding Rate and they have to pay interest for a short period of time until their reserves rise and they can return the principal. When they borrow from the Fed they have to pay the slightly higher Discount Rate until they can return the principal to the Fed. Borrowing from the Fed is rare and highly discouraged since it indicates the unwillingness of other banks to make loans to them.