The volume-weighted median rate at which banks actually lend reserves to each other overnight, published daily and expected to sit inside the target range.
The fomc sets a target-range; EFFR is the rate that actually prints. Keeping it inside the band is the operational job of the New York Fed, done with iorb as the main lever.
Where EFFR sits within the range is a useful signal. Drifting toward the top suggests reserves are getting scarce; sitting near the bottom suggests they are plentiful. A print outside the range would be a genuine plumbing event.
Example: the target range is 5.25% to 5.50%, IORB is 5.40%, and EFFR fixes at 5.33%. If EFFR drifts up to 5.42% over several weeks, expect discussion about ending balance-sheet-runoff.
Original diagrams for the ideas on this page. Illustrative, not real market data.
Range versus trend. On the left price keeps bouncing between the same floor and ceiling, which is a range. On the right each high and each low is higher than the last, inside a pair of sloping lines called a channel.Risk and reward on one trade. One trade on a price scale: the entry sits 2.00 points above the stop and 6.00 points below the target, so the shaded reward band is three times the risk band. The ratio compares what is lost if the stop is hit with what is gained if the target is reached.
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