The Fed may need to make a major adjustment to the way it raises interest rates

Although "all this is not too worrying for the Fed," as long as it can bring fund rates back to the middle of the band, continued pressure could lead to a change in monetary policy.

Fed officials did not immediately respond to a request for comment.

"Given the abundant reserves, it is unlikely that the effective rates will rise significantly above the IOR," Pearce said in a note. "If that were the case, however, the Fed would probably conclude that there is less surplus liquidity than previously thought and, as a result, bring its quantitative tightening to a premature end."

Importantly, in a few minutes after the last FOMC meeting, Fed officials noted that the rise in the key rate did not seem to stem from a lack of reserves, which would be more worrying. The US Federal Reserve expires on Treasury and mortgage-backed securities worth up to $ 50 billion a month to reduce its bond portfolio from $ 4.5 trillion to $ 4.2 trillion. Signs that reserves are rising and interest rates are on the rise could cause the central bank to ease its balance sheet reduction.

However, the problem comes at a time when the Fed is increasingly coming under fire, whether it should raise rates further and reduce its balance sheet, a process that the market calls "QT" quantitative tightening. President Donald Trump has sharply criticized the Fed for raising interest rates, and bank analyst Dick Bove said in an essay for that the central bank is "imposing a new rigid financial system on the economy."

However, at the September meeting of the FOMC meeting, it was noted that the balance sheet program has so far produced a "subdued" market reaction.

Whether this continues, however, may depend on the relationship between IOER and key interest rates.

Citigroup economist Andrew Hollenhorst said he even asked questions about whether the Fed would keep the ERI rate at the FOMC meeting on 6-7. November could reduce to 2.15 percent to further raise interest rates.

"The reduction of the key interest rate by five percent with a normalization of the policy brings obvious disadvantages," said Hollenhorst in a note. "Therefore, we believe a 5bp cut in November is unlikely, unless [the Fed funds rate] prints over 2.25% (unlikely in our view). "

In the wake of market volatility in October, traders reduced their likelihood of a key rate hike to 74 percent in December, up from 87 percent a week ago, according to CME data. The likelihood of a rise in March 2019 has dropped to 48 percent from about 62 percent a week ago.