Rate cut gets mixed reaction in Triangle

Restaurant owner Kevin Jennings, who has been considering sites for a new eatery, said Tuesday that he's more likely to buy now that the Federal Reserve has slashed a key interest rate by three-quarters of a percent.

"One point can mean thousands and thousands of dollars in savings [on loan payments] for us a month," said Jennings, whose Urban Food Group owns such Raleigh restaurants as Frazier's and Porter's City Tavern.

That's the kind of impact the Fed wants from its surprise decision to cut interest rates. The cut, announced Tuesday morning, is designed to make it easier for businesses and consumers to borrow money and ultimately prop up the economy.

Experts generally applauded the Fed's move but differed in their appraisal of how quickly the rate cut will work its way into the nation's economic fabric.

Here were some reactions:

* Grant Yarber, CEO of Raleigh-based Capital Bank, worries that the government's actions are fighting a tide of rising health care costs, "ridiculous" gasoline prices and a slumping housing market that has eroded consumers' ability to tap home equity lines of credit for ready cash.

"In the heat of all this news, I don't know that the American consumer is going to be confident in the short run," said Yarber. "It's hard to stop the ball rolling."

Longer-term, Yarber expects to see the economy improve in the latter half of this year and into 2009, in part because of the Fed's action.

* "The effect of interest rates is never immediate, but it has an impact on the psychology of businesses and consumers, and that's a plus," said Stephen Zelnak, CEO of Martin Marietta Materials. The Raleigh company produces gravel and other material for building roads, homes and office buildings.

Residential and commercial construction accounts for about 45 percent of Martin Marietta's business and is "very interest-rate sensitive," Zelnak said. "To that extent, as interest rates go down [on loans], that should be a big plus for us."

* James F. Smith, chief economist at Parsec Financial in Asheville and a business school professor at Western Carolina University, sees the Fed's action producing immediate payback.

"We may even get lucky and won't even need a stimulus package," Smith said.

As he sees it, the drawback of President Bush's stimulus plan, announced last week, is that it would take months for consumers to get their money.

"What's the point of that?" Smith asked.

Lower interest rates, however, mean people who have a home equity loan tied to the prime rate will immediately see a reduction in their monthly payments. Likewise, most credit-card debt is linked to the prime rate, so rates on those cards will drop.

Smith was pooh-poohing the likelihood of a recession even before the Fed acted. Now he's even more confident.

"All we have to do is go out and spend a little, and all this recession talk will go away," Smith said.

* Marshal Cohen, senior retail analyst at NPD Group, said lower interest rates should encourage consumers to make big-ticket purchases on credit, because they know their payments will be lower.

Not all consumers like the lower interest rates.

* Jules Coco, a software programmer who lives in Cary, was upset in August when one of his certificates of deposit came up for renewal and the prevailing interest rate was much lower than he had received previously.

"What if someone is a retiree and is living off their savings?" he asked.

The government's latest moves haven't made Coco any more confident about the economy's direction. On Tuesday, he started investigating converting some of his money into British pounds.

"I'm incredibly concerned about the devaluation of the dollar," he said.

(Researcher Brooke Cain contributed to this report.)