The Federal Reserve Bank of New York'​s "Liberty Street Economics blog features a post entitled "The Federal Reserve'​s Two Key Rates: Similar but Not the Same?" They explain, "Since the global financial crisis, the Federal Reserve has relied on two main rates to implement monetary policy -- the rate paid on reserve balances (​IORB rate) and the rate offered at the overnight reverse repo facility (​ON RRP rate). In this post, we explore how these tools steer the federal funds rate within the Federal Reserve'​s target range and how effective they have been at supporting rate control. The Federal Open Market Committee (​FOMC) communicates its stance of monetary policy through a target range for the federal funds (​fed funds) rate -- the interest rate at which banks borrow funds overnight on an unsecured basis in the fed funds market. The Federal Reserve (​the Fed) currently implements monetary policy in a regime of ample reserves, where control over the fed funds and other short-​term interest rates is exerted through two administered rates set by the Fed: the IORB rate and the ON RRP rate." The blog continues, "The IORB is the rate that the Fed pays on the reserves that banks hold overnight in their Fed accounts, thereby setting a floor on the rates at which banks lend overnight in the fed funds market. The Fed has paid IORB since October 2008. Banks, however, are only responsible for a fraction of the lending activity in the fed funds market and other U.​S. money markets. For this reason, the Fed employs a second lever: the ON RRP rate. The ON RRP facility allows eligible institutions, including money market funds, government-​sponsored enterprises, and primary dealers, to invest overnight with the Fed at the ON RRP rate. This second lever, which was added to the Fed policy toolkit in 2014, works similarly to the IORB rate, establishing a floor on the rates at which these non-​bank institutions are willing to lend funds overnight." It states, "In most FOMC meetings, the IORB and ON RRP rates are adjusted by the same amount as the target range. However, in seven of the twenty-​seven FOMC meetings in our sample, either the IORB or the ON RRP rate were adjusted by a different amount than the target range, a so-​called technical adjustment. For instance, on May 2, 2019, the IORB rate was changed from 2.​4 percent to 2.​35 percent, whereas the target range and ON RRP rate were left unchanged. Because of this, we can estimate the impact of adjusting the level of these administered rates with respect to that of the target range." The piece adds, "The Fed relies on the IORB and ON RRP rates to implement monetary policy. These two administered rates have shown to be very effective at maintaining the fed funds rate within the target range. While they work through similar channels -- steering the rates at which money market participants are willing to lend funds overnight -- they influence the distribution of fed funds rates differently, with the IORB rate mainly affecting the median and the ON RRP rate the left tail."

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