US Rates: Primer: Fed policy plumbing, ’26 edition

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US Rates: Primer: Fed policy plumbing, ’26 edition

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US Rates

Primer: Fed policy plumbing, ’26 edition

Fed plumbing critical to understanding money markets 07 July 2026

The rates market starts at the front end of the curve. To understand the US front end, it Rates Strategy

is critical to understand the plumbing, which includes the setting of Fed administered United States

rates, fed funds, & other key rates (OBFR & SOFR). This primer delves into the plumbing.

Mark Cabana, CFA

This primer builds off our ’25 piece (see the report: Fed policy plumbing, ’25 edition). RatesBofASStrategist

Key topics highlighted in this primer: mark.cabana@bofa.com

Katie Craig

Fed key policy rates & tools: We review key front-end rates and how IORB and ON Rates Strategist

RRP are adjusted to keep the fed funds rate within the target range. BofASkatie.craig@bofa.com

Dynamics of the fed funds market: we discuss how fed funds dynamics remain US Rates Research BofAS

dominated by Federal Home Loan Bank lending. +1 646 855 8846

See Team Page for List of Analysts

Fed balance sheet: we provide an overview of the Fed’s balance sheet, including key

liability items like bank reserves, Fed overnight reverse repo, and Treasury cash balance.

Reserve management purchase: we review the reasons for Fed reserve management

purchases, their outlook, and drivers of their monthly pace.

Potential Fed balance sheet changes: we review potential options for balance sheet

reduction, with bank liquidity rule changes are the most promising path.

Table of Contents

Fed policy rates & tools 2

Target range for fed funds effective rate & primary tools 2

Detail on Fed policy target, key rates, & primary tools 3

Technical adjustments: IORB & ON RRP 10

Dynamics of the Fed funds market 12

Fed funds lenders 12