What the Fed rate cut means for Maine businesses and consumers

What does the Fed rate cut mean for Maine businesses and consumers? Mainebiz asked a handful of experts.

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Seeking to calm financial markets and investors amid the global coronavirus outbreak, the Federal Reserve Bank slashed its benchmark interest rate to near zero and announced it will increase its bond holdings by $700 billion.

Following an emergency Sunday meeting, the Fed Open Market Committee said it will continue to monitor the implications of incoming information for the economic outlook, including information related to public health, and indicated that it's prepared to step in again.

"The Federal Reserve," it said, "is prepared to use its full range of tools to support the flow of credit to households and businesses and thereby promote its maximum employment and price stability goals."

The move, which had some skeptics worried leaves little firepower left, did little to calm jittery investors, sending stocks lower worldwide.

On Wall Street Monday, the S&P 500 plunged 8% at the open, triggering a 15-minute trading halt. It was still in the red, by 6.6%, at midday EDT.

In Maine, bank executives and others in the financial services sector welcomed the Fed action as mainly positive for businesses and consumers in the longer term.

"The Fed is using their playbook from 2008 to keep the financial system working as it should," Steve Tenney, founding partner and CEO of Great Diamond Partners in Portland, told Mainebiz.

Looking at the bigger picture, he said, "The economy will experience a meaningful contraction in the second quarter, so for Maine businesses their big concern is the drop in demand for their products and services as society hunkers down. Once we emerge from the crisis, the low interest rates will allow both businesses and consumers to borrow very inexpensively and be on the path to recovery."

File Photo / Tim Greenway

Greg Dufour, president and CEO of Camden National Bank, said, "The actions we took last year in response to the COVID-19 pandemic ... positioned us well during the early stages of the pandemic."

Greg Dufour, president and CEO of Camden National Bank, said his institution is also carefully monitoring the situation.

"The recent Federal Reserve rate rate cut was meant to help our financial systems by infusing cash to ensure markets keep functioning and banks have the ability to keep credit flowing to businesses and consumers, due to the potential number of shutdowns from the COVID-19 outbreak," he added.

He also said the rate cut means lower borrowing costs for Maine businesses and record low mortgage rates for consumers, as well as lower interest rates paid on savings accounts, certificates of deposit and other types of deposit.

As for the impact on businesses, he said Camden National will work closely with government agencies such as the Small Business Administration and Finance Authority of Maine as they develop support programs.

"Although these are challenging times," Dufour underscored, "Camden National Bank has the ability, financial strength and commitment to support our customers, employees and communities."

Lending systems 'fluid and flush' with liquidity

Jessamyn Norton, chief investment officer at Portland-based wealth management firm Spinnaker Trust, offered a different perspective, saying the Fed Funds rate cut means very little for businesses and consumers, since it's the overnight rate at which banks lend to other banks.

But she also said: "This very large, emergency cut means that our country’s lending systems stay fluid and flush with liquidity. It does not have direct implications for credit card rates, mortgage rates, car loan rates, small business loans, etc. On the flip-side, money market and savings accounts interest income rates will effectively go back to 0%."

The more direct impact on mortgage rates will result from the new quantitative easing round in which the Fed will be buying some mortgage-backed securities, she added.

'That should make mortgage rates fall further, but as of last week there was a disconnect between mortgage rates and the trajectory of U.S. Treasury yields.”

'Much needed safety net'

H.M. Payson's Ben Michaud, who chairs that firm's asset management group and is head of equity research, welcomed the Fed's early intervention.

"Unlike in 2008, the Fed is acting very aggressively and very early on in this crisis, which will help backstop corporate credit markets," he told Mainebiz, noting that refinancing has skyrocketed with falling interest rates.

He added: "Together with the fiscal measures taken by Congress and the White House, the Fed’s backstop of credit markets will provide U.S. companies and the broader economy a much needed safety net with which to weather the slowdown and emerge well positioned to resume normal growth trajectories on the other side of this crisis."