Worcester Business Journal

12 Worcester Business Journal | October 14, 2024 | wbjournal.com BY ERIC CASEY WBJ Staff Writer A er the nation's central bank had been telegraph- ing a rate cut for months, few people were surprised in September when the Federal Reserve decided to cut the federal interest rate to 4.83%, the first rate cut since the COVD-19 pandemic paralyzed the global economy in March 2020. e interest rate had been at 5.33% for 289 consecutive days, the highest level since 2001 and a contrast to just a few years ago in 2021, when the country was still in the throes of the pandemic and the rate hovered just above zero. In Central Massachusetts, much like the rest of the country, the most straightforward analysis of the rate reduction is it's good news for people and businesses who are either looking to borrow or who are already paying down debt, but bad news for those savers who had previously enjoyed higher-than-usual annual percentage yields. Financial insiders who shared their thoughts with WBJ on the rate cut are hopeful it will have a positive impact on consumer spending, small business- es, and the region's efforts to build its way out of its current housing crunch. A boost for housing? While the fact a rate cut was immi- nent had long been telegraphed by the Fed, economists were taken back by the fact America's central bank decided to go with a larger 50-basis-point cut, rather than a series of smaller cuts over the remainder of 2024; a Reuters survey found 92 of 101 economists were expecting just a 25-basis-point in September. "I really anticipated a quarter [per- centage cut]," said Mary McGovern, president and CEO of Country Bank in Ware. "It was a balance. I wouldn't want to be in the Feds' shoes given it's an election year. ey must have felt like the metrics and things that they follow were going in the right direction." Considering Central Massachusetts' issues with rising home costs and surging rents, much of the local focus around the news of the Fed cut has been focused on its potential impact on the housing market. e cut should be helpful to prospec- tive homeowners, McGovern said, with some of the benefits of the much-antic- ipated rate cut occurring before it was even announced. "In anticipation of the [new] rate, we've seen mortgage rates come down on 15- and 30-year mortgages, which is beneficial to anyone looking to buy a home," she said. "Perhaps builders will build a couple more houses. When they're borrowing to build, it'll be a little cheaper for them." With the amount of Greater Worces- ter housing-related construction permits reaching a 10-year low in 2023, according to U.S. Census Bureau data, there's a lot of room for improvement in the effort to build the amount of needed housing in Central Massachu- setts. e crunch has caused business- es to struggle to convince talent to attempt to be a buyer or renter. Lower rates might help turn the tide, although other factors are dragging down housing production, said Brian McEvoy, chief retail banking officer at Webster Five in Auburn. "ere's not just the interest-rate impact, but other variables, like municipal zoning requirements, and the whole not- in-my-backyard movement im- pacting multifamily housing," McEvoy said of the region's housing situation. "Some of these projects in the last cou- ple of years with the increased rate en- vironment have stalled or paused. If the impact of rate reductions is significant enough over the next 18 months, that you can certainly see that come back." Big for small businesses e positive impact for business is obvious, even if it will take some time to feel it, said Chris Geehern, executive vice president, public affairs and com- munications for trade group Associated Industries of Massachusetts. "is is unequivocally good for businesses," Geehern said. "At the same time, it's likely to be a methodical process by which these changes kind of ripple through the economy. It's great news, but it will be a series of changes, or a slow and methodical transition." While it will take some time to feel the true impact, the lower rate will be a boost for industries ranging from financial services to manufacturing, particularly for companies looking to expand, said Geehern. "It's good for technology, bioscience, and manufacturing companies that are frequently in the capital markets looking to raise money," he said. "Any capital-intensive businesses who tend to go out and borrow money, say to buy a new piece of machinery or put a new wing on their plant, for all of those companies it's ultimately good news." For local businesses with vari- able-rate loans from the U.S. Small Business Administration, the rate cut could have a particularly meaningful impact, said Geehern. "In July, the average APR on a SBA B A N K I N G & F I N A N C E e Fed's cut to interest rates will be a boost for the Central Mass. business community, although the impact may not be felt immediately Falling interest rates 0% 1% 2% 3% 4% 5% 6% .09% .08% 4.3% 5.3% 4.8% January 2021 January 2022 January 2023 January 2024 OCTOBER 2024 Source: Federal Reserve Bank of St. Louis High interest rate falling While economists were expecting a less-steep cut than the 0.5% cut by the Fed made for October, rates are still much higher than during the COVID-19 pandemic. Effective interest rate Mary McGovern, CEO & president of Country Bank Brian McEvoy, chief retail banking officer at Webster Five

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