Rise in Fed Funds Rate Signals Potential Liquidity Strain

The effective federal funds rate edged higher on Monday, a rare move that sparked selling in futures tied to the benchmark and may signal tighter financial conditions ahead.

The rate rose one basis point to 4.09% from 4.08% the prior session, New York Fed data released Tuesday show. It remains inside the Federal Open Market Committee’s 4% to 4.25% band, set last week when policymakers cut borrowing costs. For the past two years, the metric has been stuck near the lower end of the range.

Ahead of Monday’s rise, firms including Wrightson ICAP LLC and Citigroup Inc. had flagged ...