Fed rate cut has uneven consumer impact, experts say

Consumers could find the cost of home mortgages and car loans dropping as a result of the Federal Reserve Board's decision to chop the cost of loans it makes to member banks by half a point to 8.5 percent, analysts say.

But the apparent further easing of Fed credit policy will pinch other consumers' pocketbooks by lowering the return on some savings accounts, economists say.

''For anybody with an (existing) adjustable-rate mortgage there will be a substantial impact. And new home buyers will benefit,'' says Paul Boltz, vice-president at T. Rowe Price Associates Inc., a mutual-fund company.

Car loan rates often take longer to respond to changed credit-market conditions than do mortgage rates, analysts caution. And the interest charges on credit cards and department-store charge accounts are even stickier; they may not even budge as a result of the Fed's action.

Corporate loan rates react more rapidly to Fed policy shifts. Many analysts now expect banks' prime, or base, lending rate to fall from its current 11.75 percent level. That would boost business loan demand and stimulate economic activity.

By year's end, the prime could drop to ''about 11 percent,'' says David Jones , chief economist at Aubrey G. Lanston & Co., a government securities dealer.

Whatever the time lag in interest-rate changes, sales in interest-sensitive sectors of the economy (automobiles and housing, for instance) are expected to accelerate, analysts say. The change in the discount rate signals a further easing in Fed credit policy, most analysts say, which will lower interest rates and stimulate interest-rate sensitive industries.

For example, Mr. Jones sees the interest rate on fixed-rate mortgages falling from the current 13.55 percent level to 13 percent by year's end, while adjustable-rate loans could dip as low as 11.5 percent in the same time frame.

If the economy does rebound as a result of lower interest rates, it could finally move the civilian unemployment rate off the 7.4-to-7.5-percent plateau where it has been stuck for the past six months, Mr. Boltz notes.

But the recent cut - the first cut in the Fed's discount rate since December 1982 - also is likely to have an adverse financial impact on many individuals. That is because the action probably will lower the return paid to savers on accounts that are tied to the rates on government securities, experts say.

''If you have a variable-rate mortgage, this will help you. If, on the other hand, you are primarily dependent on interest income or have a lot of such income - as is the case for retirees - this will hurt you,'' says David Wyss, senior vice-president at Data Resources Inc. (DRI), an economic forecasting firm. And because of the growing number of savings accounts tied to market interest rates, there will be almost as many losers as winners from the Fed's move, he says.

Most analysts say the Fed's action shows growing concern - but not panic - about the pronounced slowdown in the economy. ''They have to be shaken by the barrage of bad economic news over the last few weeks,'' says Mr. Jones. He cites the 4.1 percent drop in durable-goods orders in October, the downward revision in the government's estimate of the seasonally adjusted growth rate of third-quarter gross national product to 1.9 percent, and the fact that retail sales have declined for three of the last four months.

The Fed's own announcement of the action noted that the move was taken ''. . . in the context of distinct moderation in the pace of business expansion. . . .''

While concerned by the slowdown, ''I don't think the Fed is panicked by any means,'' Boltz says.

That view is bolstered by recent comments by Fed officials. New York Federal Reserve Bank president Anthony M. Solomon said last week that ''signs of outright weakness are likely to prove temporary.''

In a speech delivered Nov. 20, Mr. Solomon, who oversees the Fed's operations in the financial markets, noted that ''the classic preconditions for recession just do not seem to be present.'' For example, he noted that business inventory levels are not overly troublesome, consumer confidence is strong, and business still has surplus production capacity in its factories.

The stock market seemed cheered by the Fed's action, rising 18.78 points to 1 ,220.30 on Friday, the first trading day after the move. The Treasury Department hailed the cut in the discount rate as ''welcome and appropriate.'' Treasury Secretary Donald T. Regan has recently complained that the Fed was keeping too tight a grip on the money supply, thus risking a recession.

The cheers from Wall Street and Washington come despite the fact that a change in the discount rate ''is more psychological than practical in its effect ,'' DRI's Mr. Wyss notes. The level of bank borrowing from the 12 regional Federal Reserve banks is relatively low. But a change in the rate does signal the Fed's intentions. The seven Fed governors voted unamimously to drop the rate last week.

Some economists also say the change in the discount rate also removed a floor below which other interest rates could not fall. ''The Fed is getting the discount rate out of the way so it can push the federal funds rate down,'' Wyss says. (The federal funds rate is the rate banks charge one another for overnight loans of reserves.) By increasing the amount of money banks have to lend, the Fed can raise or lower the federal funds rate. That rate plays a major role in setting banks' cost of funds and thus what customers are charged for loans.

By year's end, federal funds will be trading in the 8.5-to-9-percent range, vs. 9.25 percent on Friday and an average of 9.5 percent in recent weeks, says Deborah Johnson, a Fed watcher at Prudential Bache Securities.

In the same time period, 30-year government bonds, which on Friday were priced to yield 11.30 percent, will drop to the 10.8-to-11-percent range, she says.

Analysts are divided on the future course of Fed policy. Some, including Prudential analyst Johnson, say they think the monetary authorities will wait to see the impact of recent actions rather than move to ease monetary policy still further at a policy-setting meeting slated for Dec. 18.

Others, including Mr. Jones, say the recent cut in the discount rate shows the Fed ''will be sensitive to (new economic) data, and we may well get further aggressive easing'' in credit conditions at the mid-December session.