Federal funds rate: target range, IORB and the effective rate

The federal funds rate is the interest rate at which banks and a few other institutions lend reserve balances to each other overnight, without collateral. It is the rate the Federal Reserve targets, and when news says "the Fed raised rates" it means the FOMC moved its target range for this rate. Everything else in the US rate structure, from Treasury bills to credit-card APRs, is priced off it directly or indirectly.

There are really three numbers involved, and confusing them is common. The target range is the 25 basis point band the FOMC votes on, 3.75% to 4.00% since September 17, 2026. The effective federal funds rate (EFFR) is what the market actually paid, measured each day by the New York Fed. And the administered rates (interest on reserve balances, the overnight reverse repo rate and the standing repo rate) are the Fed's own prices that keep the market rate inside the band. This guide explains all three, shows how tightly the effective rate has tracked the range since 2022, and works through why the system holds.

What the fed funds market is

Banks hold accounts at the Fed called reserve balances. They use them to settle payments with each other. A bank that ends the day with more reserves than it wants can lend the surplus overnight to an institution that wants more, and the rate on that unsecured overnight loan is the federal funds rate. The term "fed funds" refers to the funds held at the Fed, not to money lent by the Fed.

Today reserves are plentiful, so few banks need to borrow them overnight. That is a deliberate feature of the Fed's ample-reserves framework: rather than fine-tuning the quantity of reserves each day to hit a target, as it did before 2008, the Fed supplies more than enough and controls the rate by setting the prices at which it pays and lends. The FOMC statement repeats each time that the committee is "maintaining ample reserves in the banking system."

Target range, effective rate and administered rates

Interest on reserve balances (IORB). The Board of Governors pays this rate on every dollar banks keep at the Fed. Congress authorized it in 2006, with the start brought forward to October 1, 2008. It is the main tool: no bank should lend reserves to anyone for much less than it earns by leaving them at the Fed.

Overnight reverse repo (ON RRP). Not every lender can earn IORB. Money market funds and some other firms cannot hold reserve balances, so the Fed lets them lend cash to it overnight against Treasury collateral at the ON RRP rate, with a per-counterparty cap of $160 billion a day in the October 2026 settings. Because these firms will not lend elsewhere for less, ON RRP acts as a floor under overnight market rates. It is set at the bottom of the target range.

Standing overnight repo. The reverse: eligible firms can borrow cash from the Fed overnight against Treasuries at the top of the range. This caps how high overnight rates can spike in a cash squeeze.

Primary credit. Banks can borrow directly from their Reserve Bank at the discount window. In the October 2026 settings that rate also sat at the top of the range.

Effective federal funds rate. The New York Fed computes it as the volume-weighted median of overnight fed funds trades reported by banks on the FR 2420 Report of Selected Money Market Rates, and publishes it at about 9:00 a.m. Eastern for the previous business day. A volume-weighted median means half of the dollars traded that day were at or below it.

When the FOMC changes the range, the implementation note moves all of these rates together. On September 16, 2026 it raised every one of them by 25 bp: IORB from 3.65% to 3.90%, ON RRP from 3.50% to 3.75%, the repo and discount rates from 3.75% to 4.00%.

How tightly the effective rate tracks the range

The chart shows the monthly average effective rate inside the target range through a full tightening and easing cycle. In months without a decision, the gap above the bottom of the range was small and steady:

Two details deserve attention. First, the effective rate sits just under IORB. In the December 2025 settings IORB was 3.65%, and the effective rate in early 2026 averaged 3.64%, one basis point under. Second, the spread over the bottom of the range widened from 8 bp in 2023–25 to 13–14 bp in 2026. The data alone do not say why; what they show is a rate drifting within the band, not out of it. Position within the range is one of the money-market signals analysts watch alongside the size of reserves, and since December 2025 the FOMC's balance-sheet instructions have included Treasury bill purchases to keep reserves ample (see Quantitative easing and tightening: the Fed’s balance sheet).

Monthly averages blur the months in which the range moved. In September 2026, for example, the effective rate averaged 3.75%: roughly half the month at the old range and half at the new one.

A worked example: why the floor holds

How to read it

• Quote the range, not one number. "The Fed's target is 3.75% to 4.00%." Media shorthand often uses the top or the midpoint (3.875%), which is also what the The Fed dot plot: how to read the FOMC’s rate projections projects.
• Watch the expected path. The level of the fed funds rate sets overnight rates, but 2-year and 10-year Treasury yields depend on where investors expect it to go. That is why yields can rise on a day the Fed cuts. See How Fed decisions move markets: expectations, surprises and yields.
• Adjust for inflation. A 4% policy rate means something very different with 2% inflation than with 6%. Real interest rates: nominal rates minus inflation, explained subtracts inflation, and the The Taylor rule: formula, worked example and Fed policy since 1990 offers a benchmark for the level.
• Where it shows up for you. Money market fund yields, high-yield savings accounts and Treasury bill yields move closely with the range. Bank loan rates and card APRs follow with spreads that vary by lender.

Pitfalls and limitations

• "The fed funds rate is what the Fed charges banks." No. That is the discount (primary credit) rate. The fed funds rate is a market rate between institutions.
• Mixing effective dates. FRED's target-range series records changes on the effective date, the day after the announcement.
• Old data are different. Before December 16, 2008 the FOMC announced a single target rate rather than a range, and before October 2008 the Fed paid no interest on reserves, so the effective rate could stray further from target.
• One overnight rate among several. Secured overnight repo rates are also widely watched benchmarks; the fed funds rate remains the one the FOMC targets.

The fed funds rate and other short-term rates

How Finabase does it

Finabase does not display the fed funds target range or the effective rate; there is no Fed-funds data page in the app, and the chart above is ours, built by Finabase Research from Federal Reserve data on FRED. The closest live market rates in the app are the Treasury bill yields on the Treasury yields page. The 3-month bill yield normally sits close to the expected average policy rate over the next three months, so when the FOMC moves, or markets start expecting it to, the 1-month and 3-month yields respond first. For context on decisions, use Fed news on Discover.

Frequently asked questions

What is the federal funds rate right now?

The FOMC's target range has been 3.75% to 4.00% since September 17, 2026, and the committee held it there at its October 27–28, 2026 meeting. The effective rate is published each morning by the New York Fed.

What is the difference between the fed funds rate and the discount rate?

The fed funds rate is a market rate at which institutions lend reserves to each other overnight. The discount (primary credit) rate is what a bank pays to borrow directly from the Fed, set at the top of the target range in the October 2026 settings.

What is IORB?

Interest on reserve balances: the rate the Fed pays banks on money they keep in their Fed accounts. It was 3.90% in the October 2026 settings, and it is the Fed's main tool for keeping the fed funds rate inside its target range.

Why does the Fed use a range instead of a single target?

Since December 2008 the FOMC has set a 25 bp range. With abundant reserves the Fed steers the rate through administered rates rather than daily reserve adjustments, and a band describes that control more honestly than a point.

Summary

The federal funds rate is the overnight rate on reserves lent between institutions, and it is the rate the FOMC targets. The committee sets a 25 bp range, 3.75% to 4.00% since September 2026, and the Fed keeps the market rate inside it with prices of its own: interest on reserve balances (3.90%), the overnight reverse repo rate at the bottom of the range and the standing repo rate at the top. The New York Fed measures the result each morning as a volume-weighted median. Since 2022 the effective rate has stayed inside the range, 8 to 14 basis points above the bottom in quiet months. For investors, the range sets cash and bill yields; the expected path of the range sets everything further out the curve.