AP MacroeconomicsMoney & Monetary Policy
Interest on Reserve Balances (IORB)
Interest on reserve balances (IORB) is the rate the Fed pays banks on reserves held at the Fed; it is now the Fed's main tool for steering the federal funds rate.
Since 2008 the Fed pays interest on reserves, and since 2021 a single IORB rate replaced the separate IORR/IOER rates. Banks will not lend in the fed funds market below what they can earn risk-free at the Fed, so IORB sets a floor that anchors short-term rates in today's ample-reserves system. Raising IORB tightens policy; lowering it eases.