By decreasing the use of the discount window as a source of funding for a DI, the Federal Reserve hopes to reduce volatility in the fed funds market.

Question

Quizplus · Accepted Answer

The Federal Reserve uses the discount window as a mechanism to provide liquidity to depository institutions (DIs), ensuring stability in the financial system rather than directly aiming to reduce volatility in the fed funds market. The fed funds market volatility is more directly influenced by open market operations and the Federal Reserve's policy decisions regarding interest rates.

By Decreasing the Use of the Discount Window as a Source