T-bill yields follow the Federal Reserve because a Treasury bill is a close substitute for lending cash overnight, and the Fed sets the price of overnight cash. After its October 28, 2026 meeting the target range for the federal funds rate stood at 3.75% to 4.00%. The link is tight but not instant: bills reprice when expectations about the Fed change, which usually happens weeks before a decision is announced. This guide lays out the rates the Fed controls, a day-by-day record of the September 2026 hike, how bills behaved at earlier turning points, and what a Fed move means for a ladder or a savings balance. Yields by term are on T-bill rates today, and the US Treasuries hub covers the securities themselves.
How does the Fed set the rates that T-bills compete with?
The Fed sets a target range for the federal funds rate and holds market rates inside it with two rates it pays: interest on reserves and the reverse repo rate.
The federal funds rate is what banks charge one another for unsecured overnight loans of reserves, and the Fed does not dictate it. Instead it pays banks interest on reserve balances of 3.90%, so no bank has a reason to lend overnight for much less. It also runs an overnight reverse repurchase facility, where money market funds and other eligible firms lend cash to the Fed against Treasury collateral at 3.75%, up to $160 billion each per day. That second rate matters most for bills: a money fund can always earn it by lending to the Fed itself, so it has little reason to buy a bill that yields much less. On the other side, the standing repo facility lends against Treasuries at 4.00%, the top of the range, which limits how far overnight borrowing costs can spike.
| Rate | Level | What it is |
|---|---|---|
| Federal funds target range | 3.75% to 4.00% | The FOMC's policy setting |
| Interest on reserve balances | 3.90% | Paid by the Fed on banks' reserves |
| Overnight reverse repo rate | 3.75% | Paid by the Fed to money funds and other eligible lenders |
| Effective fed funds rate, Oct 29, 2026 | 3.88% | Volume-weighted median of overnight bank borrowing, published by the New York Fed |
| SOFR, Oct 29, 2026 | 3.94% | Overnight borrowing secured by Treasuries |
| 4-week bill, Oct 29, 2026 | 3.98% | Investment yield from Treasury's daily bill rates |
| 13-week bill, Oct 29, 2026 | 4.10% | Same basis |
| 26-week bill, Oct 29, 2026 | 4.30% | Same basis |
Two forces lift bill yields above the overnight rates in that table. One is arithmetic: overnight money market rates are quoted on a 360-day year, while a bill's investment yield uses 365 days, which on its own adds about 0.05 point at these levels. The other is expectation: a bill locks in a rate for weeks or months, so its yield reflects the overnight rates investors expect over its life, not just today's. The conversion between a bill's discount rate and its investment yield is set out in T-bill discount rate vs investment rate.
Why do T-bill yields move before the Fed meets?
A bill's yield reflects the overnight rates investors expect over its whole life, so a widely expected move is priced in as soon as the meeting falls within that life.
Consider the choice a cash manager faces: lend overnight and roll the loan every day for 13 weeks, or buy one 13-week bill. If the two paths are expected to earn different amounts, money moves to the better one until they roughly match. A bill's yield therefore sits close to the average overnight rate expected between purchase and maturity, plus or minus a small premium for supply and convenience.
Worked example: Pricing a 13-week bill with a hike six weeks away
Suppose overnight money pays 3.63%, and investors are confident it will pay 3.88% after a Fed meeting 42 days into a 91-day bill's life.
- Expected average overnight rate: (3.63% × 42 days + 3.88% × 49 days) ÷ 91 days = 3.76%
- The bill trades near 3.76% on the same 360-day basis while the old range is still in force.
- If the Fed then hikes as expected, the bill's yield hardly moves, because the news was already in the price.
- If the Fed holds instead, the expected average falls back toward 3.63%, and the bill's yield drops about 0.13 point in a day.
The September 2026 meeting played out like the first branch. On September 15, the day before the decision, the 4-week bill's investment yield was 3.85% while the effective fed funds rate was still 3.63%. A 4-week bill bought that day would spend almost its whole life under whatever range the Fed chose, so buyers were already demanding the post-hike rate. The 3-month par yield, at 4.11%, sat above the 3.75% ceiling of the range then in force, and its monthly average had been above that ceiling since June: 3.81% in June, 3.87% in July and 3.88% in August.
The same thing happens in reverse before cuts. In 2024 the 3-month yield fell from 5.50% on June 18 to 4.95% on September 17, the day before the Fed's first cut of that cycle, and moved only another 0.11 point when a half-point cut arrived.
What happened to bill yields around the September 2026 hike and the October hold?
Bill yields had absorbed the September hike before it was announced and barely moved after it, while overnight rates jumped about a quarter point the day it took effect.
The FOMC voted 12 to 0 on September 16, 2026 to raise the target range by a quarter point, to 3.75% to 4.00%, effective the next day. On October 28 it held the range by a 10 to 2 vote; Lisa D. Cook and Beth M. Hammack preferred another quarter-point increase. The table follows overnight rates and bill investment yields across both meetings.
| Date, 2026 | Event | Effective fed funds | SOFR | 4-week bill | 13-week bill | 52-week bill |
|---|---|---|---|---|---|---|
| Sept 15 | Day before the decision | 3.63% | 3.64% | 3.85% | 4.07% | 4.36% |
| Sept 16 | Hike announced at 2:00 p.m. | 3.63% | 3.62% | 3.88% | 4.09% | 4.43% |
| Sept 17 | New range takes effect | 3.88% | 3.85% | 3.89% | 4.07% | 4.37% |
| Oct 28 | Hold announced | 3.88% | 3.94% | 3.97% | 4.11% | 4.47% |
| Oct 29 | Day after the hold | 3.88% | 3.94% | 3.98% | 4.10% | 4.42% |
Three readings stand out. Overnight rates followed the decision to the basis point: the effective rate moved from 3.63% to 3.88% on the effective date, exactly the 0.25 point the Fed added. The 13-week bill finished that day where it had started two days earlier, at 4.07%, because it had priced the hike in advance. And the 52-week bill, whose life spans the next eight meetings, swung most: up 0.07 point on decision day and down 0.06 the next, as markets absorbed the statement and the Fed's new economic projections. After the October hold, the 52-week yield slipped from 4.47% to 4.36% by October 30 while the 4-week bill stayed near 3.98%.
How closely have T-bills followed past Fed cycles?
At the short end very closely: the 3-month yield has tracked the target range through each cycle since 2004, usually turning weeks or months before the Fed itself did.
| Measure | Yield | Month |
|---|---|---|
| Latest monthly average | 4.23% | Oct 2026 |
| A year earlier | 3.98% | Oct 2025 |
| Average over the last 10 years | 2.55% | |
| Average since 2000 | 2.00% | |
| Highest month | 6.36% | Nov 2000 |
| Lowest month | 0.01% | Dec 2011 |
The chart plots the monthly average 3-month Treasury yield since 2000, and each Fed cycle shows up as a staircase: the 2004 to 2006 hikes, the slide toward zero in 2008, the long flat stretch that followed, the steep 2022 to 2023 climb and the cuts that began in 2024. The table beneath it gives the latest monthly average, the reading a year earlier, the 10-year and since-2000 averages, and the highest and lowest months. For a closer look at the turning points, the next table uses Treasury's daily 3-month par yield around the first move of each cycle.
| Fed decision | Move | 3-month yield 3 months before | Day before | 3 months after |
|---|---|---|---|---|
| June 30, 2004 | First hike: target raised from 1.00% to 1.25% | 0.96% | 1.38% | 1.71% |
| Sept 18, 2007 | First cut: target lowered from 5.25% to 4.75% | 4.63% | 4.15% | 3.04% |
| Dec 16, 2015 | First hike: range raised from 0–0.25% to 0.25–0.50% | 0.06% | 0.25% | 0.31% |
| July 31, 2019 | First cut: range lowered from 2.25–2.50% to 2.00–2.25% | 2.43% | 2.08% | 1.54% |
| March 16, 2022 | First hike: range raised from 0–0.25% to 0.25–0.50% | 0.05% | 0.46% | 1.59% |
| Sept 18, 2024 | First cut: range lowered from 5.25–5.50% to 4.75–5.00% | 5.50% | 4.95% | 4.36% |
| Sept 16, 2026 | Hike: range raised from 3.50–3.75% to 3.75–4.00% | 3.79% | 4.11% | 4.16% on Oct 30 |
In all seven cases the bill moved first. Before the 2019 and 2024 cuts the 3-month yield had already dropped below the bottom of the range in force, and before the 2004, 2022 and 2026 hikes it had climbed above the top. The Fed's announcement mostly confirmed a price that was already there.
Bills also move for reasons unrelated to policy. During the 2023 debt-limit standoff the 1-month par yield climbed to 6.02% on May 26, well above the 5.00% to 5.25% range then in force, because those bills matured close to the date Treasury could have run out of borrowing room. Are Treasuries risk-free? covers that episode, and what moves Treasury yields explains why longer maturities answer to more than the Fed.
What do Fed rate changes mean for a T-bill ladder?
A ladder passes a Fed move through one rung at a time, so the average yield on the whole ladder adjusts over the length of its longest bill.
Worked example: A quarter-point cut moving through a 13-rung ladder
Take $65,000 split into 13 rungs of $5,000 in 13-week bills, one maturing each week, all bought at 4.00%. Suppose, as an illustration rather than a forecast, that new 13-week bills yield 3.75% after a cut.
- Each week one rung, 1/13 of the ladder, rolls into a 3.75% bill.
- The ladder's average yield falls by 0.25 ÷ 13 ≈ 0.019 point a week.
- After 13 weeks every rung yields 3.75%, and annual income has fallen from $65,000 × 4.00% = $2,600 to $65,000 × 3.75% = $2,437.50, or $162.50 a year.
In practice the step down usually starts before the meeting, because the rungs bought in the weeks ahead of a widely expected cut already carry most of it. Moving to longer rungs to hold today's yield works only against moves the market has not priced: a 52-week bill's yield already reflects the cuts or hikes investors expect over the coming year. What a longer rung buys is certainty about income for longer, at the cost of a larger price swing if you need to sell early. Rung sizes, terms and spacing are covered in the T-bill ladder guide, rollovers in what happens when a T-bill matures, and the Treasury bill calculator prices any rung at a given rate.
How fast do savings accounts and money market funds follow the Fed?
Money market funds follow within weeks because they hold short bills and repo, while bank savings rates move at each bank's discretion and the national average barely moves at all.
| Product | What sets its rate | When a Fed move reaches you |
|---|---|---|
| New T-bill | The auction or market price | Often before the meeting, as expectations shift |
| T-bill you already own | Fixed at purchase | At maturity, 4 to 52 weeks away |
| Treasury floating rate note | Latest 13-week bill auction rate plus a fixed spread | Within a week, at the next 13-week auction |
| Government money market fund | Yields on its bills, repo and reverse repo, minus fees | Within weeks, since its average maturity is capped at 60 days |
| Savings or money market deposit account | The bank's decision | Whenever the bank changes its rate, if it does |
| CD | Fixed for the term | Only on new CDs |
| I bond | CPI inflation plus a fixed rate set by Treasury | Not directly; rates reset each May and November |
Money market funds respond quickly because SEC Rule 2a-7 caps a fund's dollar-weighted average maturity at 60 days, so the portfolio turns over within weeks, and government funds can also lend directly to the Fed through the reverse repo facility. Their yields track bill and repo rates minus the expense ratio. How money market funds work covers the rules, and T-bills vs money market funds compares owning bills directly with owning a fund.
The bank side moves least on average. The FDIC's national average savings rate was 0.38% (FDIC, as of Nov 1, 2026), and its average for money market deposit accounts 0.63%, against an effective fed funds rate of 3.88% in late October. Those averages are weighted by deposits, so they lean toward large banks that pay little; online accounts can sit much closer to bill yields. How high-yield savings accounts work explains how banks set those rates, and T-bills vs high-yield savings runs the comparison after state tax.
What are the risks of trading T-bills around Fed decisions?
The main risks are paying for a move that is already priced, being caught out by a surprise, and rolling into lower yields after cuts.
- Paying for a priced-in move. A 52-week bill bought just before an expected cut earns the yield on the day you buy, which already reflects that cut and the others investors expect during the year. Only a cut larger or sooner than priced leaves the early buyer ahead of someone who waited.
- Surprises cut both ways. If the Fed acts differently from what markets priced, longer bills reprice at once. A 52-week bill bought at a 4.17% discount rate would lose about 1.1% of its price if its yield jumped a full point right after purchase; held to maturity it still pays face value. Selling early is covered in selling Treasuries before maturity.
- Reinvestment after cuts. Short bills hand back cash at whatever rate prevails. The 3-month par yield fell from 5.50% on June 18, 2024 to 3.64% on December 17, 2025 as the Fed cut, about a third less income on the same balance. Short-term vs long-term Treasuries weighs that against the price risk of locking in longer.
- Mixing quote conventions. Fed funds and SOFR use a 360-day year, bill discount rates are figured on face value over 360 days, investment yields use the price and 365 days, and savings accounts quote an APY. A gap of a few hundredths of a point can be nothing more than a different convention.
- Access and timing. Securities bought at TreasuryDirect must be held for 45 calendar days before they can be transferred to a broker and sold, so that account is not built for trading around meetings.
- Treating forecasts as plans. The FOMC cut its range three times in late 2025, raised it in September 2026, and two members wanted a further increase in October. Any plan that depends on knowing the next move in advance rests on a guess.
None of these risks touches the credit behind the bill: Treasury bills are backed by the full faith and credit of the US government. A Fed decision changes the rate you earn next, not whether you are paid. Bill interest is also federally taxable and exempt from state and local income tax whatever the Fed does, as are T-bills taxable? explains.