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Letter to the editor

Rate cut helps; What's next

By Times Staff Writers
Published September 22, 2007

Nobody's about to dismiss lower interest rates as an aid to a wavering economy. But the Federal Reserve's decision this week to cut the short-term federal funds rate more sharply than expected to 4.75 from 5.25 percent was met with some decidedly mixed views in a sampling of Tampa Bay businesses and borrowers by Times business reporters. The bottom line: A rate cut can help but the economy - especially the tighter availability of credit - has plenty of other challenges before it. Here are some interview highlights:  

Fitness center CEO: "Smart one to restore the banks."

Lifestyle Family Fitness Inc. secured financing for its ambitious long-term growth strategy months before the credit crunch. "I feel lucky we did it then," said Geoff Dyer, CEO of the St. Petersburg chain that is adding seven stores this year to bring the total to 49 fitness centers in four states. "But this move by the fed was a smart one to restore the banks so they aren't scared to lend. We haven't seen any effect on our members, but the last thing we want are more foreclosures and personal bankruptcies." - Mark Albright

Hotel developer: "Loosened one button on the sweater."

Lenders were wary of hotel construction projects before Tuesday's rate cut and that hasn't changed, said George Glover chief executive of BayStar Hotel Group. "Everybody's sitting back waiting," said Glover, whose company is trying to nail down financing for a 170-room hotel in Tampa. "The economics of projects are getting a lot more scrutiny."

Room demand has been strong at the half-dozen hotels BayStar owns or operates in the Tampa Bay area, Orlando and Tallahassee. Consumers might feel more flush from lower interest rates, Glover said. But they're still worried about rising oil prices and insurance premiums. The Fed "maybe loosened one button on the sweater," he said. - Steve Huettel

Pool builder: "Hopefully get foreign investors in here."

Home improvement contractors already trying to overcome multiple obstacles tossed in their path say the rate cut can only help restore consumer confidence.

"It's a big positive because it should help people use equity lines of credit and hopefully get foreign investors in here to buy new housing and some of those condos," said Mike Kelly, owner of Kelly Pools in Indian Rocks Beach.

Kelly noted that there are numerous people in the building trade "out there starving for work. I get calls from subs every day looking for jobs that never used to give us the time of day." - Mark Albright

Mortgage broker: "Down to myself and my wife."

In theory, the Fed's rate cut should be a boon for mortgage brokers. Lenders should be slicing mortgage rates, homebuyers would be lured by more affordable terms, and calls to mortgage brokers increase.

Tell that to Scott L. Clark. The president of The Loan Store Inc. in St. Petersburg says the rate cut won't help him much because most of the alternative loan programs he specializes in have either tightened their standards or disappeared, thanks to the ongoing housing slump. These include riskier "no-doc" and "stated" loans, which require relatively little financial disclosure from borrowers.

It would take a huge rate cut to rejuvenate The Loan Store, which began the year with 22 employees and a nice office. "I'm pretty much down to myself and my wife," Clark said. - Scott Barancik

Staffing agency: Unemployment? "It's gonna go up."

Jennie Blackburn, branch manager at the PersoNet staffing agency in Clearwater, sees the Fed's cut as an indication that the unemployment rate will increase. "Not overnight," she said, "but it's gonna go up."

That's good news, in a way, for Blackburn. It means a larger pool of job applicants and better workers for clients. It also means that the people she places won't skip out after three days on the job. "They think, 'Oh, somebody else will hire me; they need people,' " Blackburn said, "and that's just not going to cut it anymore." - Christina Rexrode

Credit counselor: "Short-term shot in the arm."

Lower interest rates make some loans more affordable, but the Fed's rate cut won't extend to all borrowing, says Richard Schram, a manager at Consumer Credit Counseling Service in Orlando. The interest rate of student loans, for example, is set each year by the government. Most car loans and credit cards have a fixed interest rate. Many mortgages do, too. And even the adjustable rate mortgages and credit cards are not tied directly to the rate the Fed sets for federal funds.

Home equity lines of credit, Schram noted, are the most affected by the federal funds rate. Mostly, he said, the Fed's move is "kind of a short-term shot in the arm" to encourage businesses to borrow and expand. "And that, in turn, stimulates the economy." - Christina Rexrode

Tech exec: "We need some radical adjustments."

"I read about (the rate cut), but it didn't seem that the cuts are directed at businesses," said Sam Sandusky, CEO of Tampa-based Big Sur Technologies. "I don't borrow money to run my business, so the short-term lending rates don't affect me.'

Rather than rate cuts, Sandusky urges "radical adjustments" to help small businesses. "We are spending all our money in a war overseas when we need to concentrate at home on our economy." - Madhusmita Bora

Builder/remodeler: " Not a customer in sight." 

"It's killing me right now," Monroe said. A couple years ago, he'd have buyers lined up before he could even finish building or remodeling a house. Now he has remodeled homes "and not a customer in sight." - Christina Rexrode

[Last modified September 22, 2007, 01:24:19]