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Deposit Costs and Gradual Policy Rate Reduction

Bank deposits exhibit convexity. How effectively a depository can pass on changes in Federal Reserve policy rates to customers is influenced by how quickly the policy rate shifts. The current rate-cutting cycle differs from 2020 because rates are higher, and the pace of rate cuts is more gradual and predictable. With the Fed signaling a slower pace of rate cuts, it may be appropriate for members to consider the relative costs of all available funding sources, including FHLBank Boston advances.