IORB: The Fed’s Soft Floor for the Funds Rate
Macro Glossary, Macro Drivers
By Ken Chigbo, macro trader and founder of KenMacro, 18+ years in markets.
Updated 2026-05-20
The desk’s answer
IORB is the Interest on Reserve Balances rate, the interest the Fed pays banks on the reserves they hold at the Federal Reserve. It is the upper administered rate in the FOMC’s target range and is designed as a soft floor for short-term rates: no rational bank would lend in the money market below IORB when it could earn IORB at the Fed with no counterparty risk. The ‘soft’ qualifier matters because non-bank lenders (money market funds, GSEs) cannot earn IORB and routinely lend below it, which is why the reverse repo rate sits beneath IORB as the hard floor.
Defined term, IORB (Interest on Reserve Balances)
IORB is the interest rate the Federal Reserve pays banks on the reserves they hold at the Fed. It replaced the earlier IOER and IORR in 2021 and is the upper administered rate in the FOMC’s target range, designed to act as a soft floor for short-term money market rates by paying banks a known administered rate on their excess reserves.
Where IORB sits in the rate stack
The FOMC sets a target range for the fed funds rate, with two administered rates inside it. The upper bound is IORB, the rate the Fed pays banks on their reserves. The lower bound is the ON RRP (overnight reverse repo) rate, available to a broader set of counterparties including money market funds. In the current regime IORB sits at the upper end of the range and ON RRP at the lower end. The Fed steers fed funds within these by adjusting both rates and by managing the size of its balance sheet, which determines the supply of reserves in the system.
Why IORB is a soft floor not a hard floor
Only banks can earn IORB. Money market funds, GSEs, and other non-bank lenders cannot park cash at the Fed and earn IORB. They can lend in the federal funds market and in repo, but banks that borrow from them and re-deposit at the Fed face a balance-sheet cost (the SLR leverage ratio), which prevents the arbitrage from closing fully. The result is that fed funds and SOFR routinely trade a few basis points below IORB even when reserves are abundant. The ON RRP rate, available to money market funds, is the hard floor.
How traders use IORB shifts
The FOMC sets IORB and ON RRP at every meeting alongside the headline target range. Most adjustments are mechanical (move both by 25 basis points to match a target range move). But the FOMC occasionally adjusts IORB independently of the target range, by 5 basis points up or down, to fine-tune where fed funds and SOFR settle in the range. These technical adjustments are a signal that the Fed sees fed funds drifting too high or too low in the range and is steering it without changing policy stance. Traders read them as plumbing, not policy.
Frequently asked
What does IORB stand for?
Interest on Reserve Balances, the rate the Federal Reserve pays banks on the reserves they hold at the Fed. It replaced the earlier IOER and IORR in 2021 and is the upper administered rate in the FOMC’s target range.
Is IORB the same as the fed funds rate?
No. IORB is the rate the Fed pays banks on reserves and is the upper administered rate. The fed funds rate is the market rate at which banks lend reserves to each other overnight, and it trades within the target range, usually a few basis points below IORB.
Why does IORB act as only a soft floor?
Because only banks can earn IORB. Non-bank lenders like money market funds cannot, so they lend in the market at rates below IORB. Bank arbitrage is constrained by leverage rules, so fed funds and SOFR routinely print below IORB even when reserves are abundant.
What this means at the desk
Treat IORB as the bank-side floor. When SOFR drifts toward or above it, dollar reserves are getting scarce.
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