Mossbauer spectroscopy, temperature programmed reduction (TPR), and FTIR of adsorbed CO show that ion exchange of [Rh(NH3)(4)CL]Cl-2 and FeSO4 into NaY, followed by calcination and reduction in H-2 up to 500 degrees C, leads to Fe2+ ions and bimetallic RhFe clusters with low Fe-0 content. The selectivity of such catalysts toward oxygenate formation in CO hydrogenation at p = 10 bar, T = 250 degrees C, and H-2/CO = 2 is very low. Much higher oxygenate selectivity, in particular ethanol formation, is observed if Fe2+ ions are first hydrolyzed to a hydroxide gel which is subsequently dehydrated. The resulting catalysts contain bimetallic particles of higher Fe-0 content after reduction, coexisting with an Fe2+ oxide phase. Transmission electron microscopy shows that a fraction of the metal migrates to the external surface of the NaY support during CO hydrogenation. The results show that Fe exerts two catalytic promoter functions on Rh/NaY catalysts : Fe-0 alloyed with Rh-0 increases the catalytic activity; Fe2+, when present as a separate oxide phase in close contact with Rh particles, increases the selectivity toward C-2+ oxygenates.