Financial leaders: Rate cut a positive economic sign

Economist John Mitchell expected the Federal Reserve to cut its benchmark interest rate by .25% on Wednesday. Instead, it went big, with .50. 

Mitchell said that’s a good sign. 

“The economy continues to grow, employment continues to rise and inflation numbers continue to come down,” the former chief economist for US Bank said.

It’s an indicator that the economy is “fundamentally sound,” Mitchell said, and the Federal Reserve hopes to keep it going in the right direction.

“I think they’re sending a strong message that we're starting down and we're not behind the curve,” he said, alluding to comments that the Fed waited too long to cut rates. “It helps reduce the risks.” 

Brad Dugdale, senior vice president, portfolio manager with DA Davidson in Coeur d'Alene, said "there's no doubt that lower interest rates are friendly to the consumer, and they are also friendly to business."

"If you lower interest rates, then payments are going to be lower," he said.

The move is a way to "rekindle the economy," Dugdale said.

"It's a start in the right direction," he said. 

Two more rate cuts are projected before year’s end, Mitchell said, as the Fed is “unwinding the tightening” with a series of rate rates to counter inflation that seemed to have succeeded. 

“This just the first step,” the Coeur d'Alene man said. 

Despite the rate cut announcement, the Dow Jones lost ground, falling 103 points, but is still hovering near record-high territory. 

Mitchell said the impact of the cut will take time to ripple through the economy. It is expected to lower mortgage rates and loans and could spark increased activity in the housing market. 

Mitchell said a fundamental problem remains with housing, that being many homeowners have loans with interest rates of 2.5 to 3.5%. With the current average interest rate for a 30-year fixed mortgage at 6.24%, most are unwilling to give up their low rate. 

“We have to remember, those people are locked in. It affects supply and demand,” Mitchell said.

He said if earnings continue to be strong and with additional rate cuts down the road, the market will likely respond accordingly. 

“You may get an upward movement in the stock market,” Mitchell said. 

Mitchell said the economy is solid. 

“It does not seem to be falling off the cliff,” he said. 

Dugdale shared similar comments.

"It's obvious things have tempered a little bit," he said. "The Fed feels it has enough cushion to make sure we don't have a recession."