LENDING CHARGES MAY FALL

The Federal Reserve Board's move to cut the benchmark discount rate by a full percentage point may give the economy a shot in the arm and unleash lower interest rates for consumers and businesses, some Cape Girardeau financial executives say.

But, they add, it may have little effect on long-term credit.

The Fed cut its discount rate to 3.5 percent Friday, a full percentage point below the previous 4.5 rate.

The rate was the biggest cut in the discount rate in 10 years and brought it down to its lowest level in more than 27 years. The Fed last cut the rate by a full percentage point on Dec. 4, 1981. The last time the discount rate was at 3.5 percent was on Nov. 24, 1964.

The discount rate is the rate at which the Fed lends money to member banks and its movements are widely viewed as a bellwether indicator for other interest rates.

"It may have some effect on short-term credit," said O.J. (Ollie) Miller, president and CEO of Mercantile Bank of Cape Girardeau. "But, I don't see any big effects on long-term credit.

"For the most part, lower rates have already kicked in on the long-term credit," he added. "A lot of people have already refinanced their homes, for lower interest rates and shorter mortgage periods."

Miller said, however, that the move could encourage some businesses to expand.

"This would be a big help," he said. "It could result in additional employment."

"We hope it will spur people to make additional purchases," said Charles Daniel, president of Capital Bank.

"The prime rate and other interest rates could fall as a result of the Fed's decision," he added. "We could see a modest decrease in short-term loans but the long-term loans auto and car will not be greatly effected."

Local stockbrokers said they were pleased by the Fed's action.

"The cut was a big surprise to us," said Marsha Limbaugh of the Cape Girardeau office of A.G. Edwards & Sons Inc. "We expected it to happen in January.

"I think this move will help reinforce confidence and restore a positive attitude," said Limbaugh, who added that the interest cut will help offset the news of a heavy job layoff by General Motors. The company has announced it will shut down 21 plants over the next four years.

"The GM news was a big negative," she said.

"The Federal Reserve Board cut should eventually filter down into the economy," she pointed out.

"The Federal Reserve Board's announcement will have a good effect," said Joe Domian of the Edward D. Jones & Co. office at 1749 Independence. "It will stimulate further refinancing of home mortgages and because of that refinancing, consumers will have a little more money in their pockets.

"If they save the extra money, it will mean they'll have more money to spend in the future, and if they spend it, they will spur the economy," added Domian.

Domian said that Friday could have been a down day on the New York Stock Exchange without the announcement of the tax cut.

But the Dow Jones average of 30 industrial stocks was up 17.66 at 2,932.02 during the first half-hour of trading on the New York Stock Exchange, and finished the day at 2,934.48, an increase of 20.12 points.

"People will be looking at their investments," said Domian. "Passbook savings and CD rates will be lower, and a lot of investors will be looking for better investments."

The Fed last changed the discount rate Nov. 6, when it was reduced to 4.5 percent from 5 percent. The last time the discount rate was below 4 percent was from April 7, 1967 to Nov. 20, 1967.

The interest rate cut is an effort by the Fed to encourage consumer and business spending and thereby bolster the nation's economy. Consumers buy about two-thirds of all goods and services produced in the United States; government and business buys the rest.

Recent indications are that consumers, many of whom are faced with the threat of layoffs, have held back on spending. The nation's unemployment rate remains stuck at 6.8 percent, with some 8.5 million Americans out of work.