Under normal circumstances, we face no tension between supplying liquidity and achieving our interest rate objective, because we supply a relatively small amount of funds to the private sector through our open market operations with primary dealers and discount window lending to banks.
Over the past 15 months, however, as  BIS Review 125/2008  3  lenders have become increasingly reluctant to lend to each other, the Federal Reserve has had to take on a much greater role in the financial system to carry out its public policy responsibilities to provide a backstop source of liquidity.