Small biz mild on rate rise
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May 16, 2000: 6:04 p.m. ET
Most shrugged off Fed action, but some say it was stronger than necessary
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NEW YORK (CNNfn) - Small-business leaders seemed largely unconcerned Tuesday after Federal Reserve policy makers raised short-term lending rates, although some criticized the action.
In fact, the National Association of Manufacturers faulted the increase as "excessive and unwarranted."
The rate hike represents "unnecessary shock treatment because recent interest rate increases are already beginning to slow the economy," Jerry Jasinowski, NAM's president, said in a statement. "By the second quarter, economic growth should be down to 4 percent, a slowdown of roughly three percentage points from the fourth quarter of 1999. Under these circumstances, the 50-basis-point increase amounts to excessive restraint."
The U.S. Chamber of Commerce also challenged the wisdom of the move. "We question the reasonableness of a 50-basis-point increase," said Stephan Thurman, deputy chief economist of the Washington, D.C.-based group. He pointed to the consumer-price report released earlier Tuesday, before the Fed meeting, that showed retail prices holding steady in April.
"Where's the inflation? We had a spike in energy prices [earlier in the year], but that seems to be receding," Thurman said. He suggested that the Fed may have put itself in a box by guiding Wall Street to expect the half-point rise. "I think the Fed is reading its own press," he said, noting that stocks rallied after the announcement. "What would have happened in the markets today if it had only been 25 [basis points]?"
But another business advocate minimized the impact of the rate increase. "The real issue for small business is credit availability, rather than interest rates," said William C. Dunkelberg, a Temple University professor and chief economist of the National Federation of Independent Business.
The real impact on business will come only when rate hikes eventually have their intended effect of slowing the economy and discouraging consumers from buying more, Dunkelberg said.
"Cash flow is keeping small businesses going," he said, citing NFIB research that some 36 percent of small business owners are borrowing regularly. "Each time it goes up there will be a little more pain ... When those customers disappear, that's when we all will feel the pinch."
Notwithstanding the rate hike, the National Automobile Dealers Association predicted that the sale of its members' products would remain strong into the year 2001.
"The impact will be concentrated on specialty and sports cars and vehicles over $50,000 in price, continuing the modest pattern of slower growth in luxury-vehicle sales," said Paul Taylor, NADA's chief economist.
Car sales should approach 17 million units this year, near 1999's record level, he said, and 2001 sales should be about 15.5 million vehicles, which Taylor described as a fourth year of strong sales.
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