The Fed Funds Corridor Narrows From the Wrong Side

The signal in the Fed's latest money-market data is not about the policy rate. It is about the plumbing underneath it. EFFR printed 3.63% on May 14 against IORB at 3.65%, a gap of -2 bp ([FRED EFFR]fred.stlouisfed.org; [FRED IORB]fred.stlouisfed.org). That spread has compressed from -7 bp in mid-2025, when EFFR sat at 4.33% and IORB at 4.40%. The tightening looks orderly until you check the secured side: SOFR fixed at 3.56% the same day, 9 bp below IORB, while its 99th percentile reached 3.67%, 2 bp above IORB itself ([NY Fed SOFR]markets.newyorkfed.org). The ON RRP facility, once absorbing hundreds of billions, accepted only $2,034,000,000 on May 14 ([NY Fed RRP]markets.newyorkfed.org).

Two facts frame the shift:

- Reserves bottomed at $2,848,021 million on October 29, 2025, recovered to $3,102,810 million by May 13, 2026, but remain below their March 2025 peak of $3,467,789 million ([FRED WRESBAL]fred.stlouisfed.org). - SOFR repeatedly printed above IORB during stress windows last year: 4.51% against 4.40% on September 15, 2025, and 4.12% against 3.90% on November 28, 2025 ([FRED SOFR]fred.stlouisfed.org).

The full issue maps the corridor's evolution, examines what the SOFR distribution's right tail says about reserve distribution, and identifies the specific print that may help indicate whether the plumbing story is deteriorating.