LESSON 1 / 4 · 7 MIN
The Fed's range: floor and ceiling
Know which administered rate sits where in the range, and why.
The Fed does not set a single rate: it sets a range 0.25 points wide for the federal funds rate (for example 3.75%–4.00%). To keep the market inside it, it uses rates it pays and charges itself.
| Rate | Who it affects | Role |
|---|---|---|
| ON RRP rate | Money market funds | Floor: nobody lends for less |
| IORB (interest on reserve balances) | Banks | Anchor: banks will not lend reserves for much less than this |
| Standing repo facility rate | Banks and dealers | Ceiling: anyone with collateral can borrow here |
The effective federal funds rate (EFFR) is what banks actually charge each other overnight without collateral. In normal times it sits quietly inside the range and barely moves. That is why it is a poor stress signal: the Fed's design pins it in place.
Key idea
The rates the Fed sets tell you its intentions. The rates the market pays (next lesson) tell you whether there is enough money.
On the site · /fed-decisions
Open /fed-decisions and write down the current range.
Open it on the site →Check yourself
Why does the ON RRP rate act as a floor?