Dutkowsky Weighs In on Upcoming Interest Rates

One of our Syracuse University faculty experts weighed in on what we can expect ahead of the Federal Reserve announcement on February 1, 2023. Don Dutkowsky, Professor Emeritus of Economics, Maxwell School of Citizenship and Public Affairs at Syracuse University, writes:

“Wednesday the Federal Reserve should increase its target federal funds range from its current mark of 4.25%-4.50%, although with a smaller hike than its recent 75 basis point increases. While inflation is subsiding, it remains above the 2% target and the Fed has expressed its commitment to fully resolving the problem. The FOMC will likely implement a 25 or 50 basis point increase in the federal funds range, with more to come if necessary.

The Federal Reserve’s Implementation Note, published right after FOMC meetings, reveals corresponding changes made alongside this decision. Over the past year or so, whenever the Fed changes the federal funds range, it simultaneously sets the interest rate on bank reserves (IOR) at 10 basis points below the top of the range (the IOR is currently at 4.40%) and the discount rate at the top of the range. Then after these changes, the Fed maintains the level of the federal funds rate equal to 7 basis points less than the IOR (currently 4.33%). The IOR plays an important role in monetary policy. Increasing this rate induces banks to hold more reserves at the Fed, as opposed to lending them to consumers and businesses. This is in addition to the Fed’s interest rate increases leading to higher borrowing costs for durable goods, houses, and business investment, dampening demand as a result.”

If you’d to schedule an interview with Professor Dutkowsky, please reach out to Vanessa Marquette, Media Relations Specialist, at vrmarque@syr.edu.