Hi-Tech Execs: Fed Rate Cut Was a Necessary Move

Executives in the hi-tech industry are applauding today's move by the Federal Reserve to cut interest rates half a percentage point to boost the sluggish economy and strengthen the financial markets after the terrorist attacks against the United States Tuesday.

Rates were cut from 3.5 percent to 3 percent, making it the eighth reduction by the Federal Reserve this year.

"Between the Fed's aggressive rate cutting and the broken piggy bank of the social security surplus, there will be huge fiscal stimulus to the economy, which should result in the next six months in a pick up in demand for both capital and consumer and products," says Peter Kastner, chief research officer at Aberdeen Group, Boston.

"It will take the world markets some days to adjust to last Tuesday's tragedies, and any other military events yet to occur, but the economic underpinning for a classic fiscal turnaround is now in place," says Kastner.

The missing ingredient, he says, will be consumer confidence.

The tech industry goes hand in hand with capital spending, says Frank Brown, director of e-business strategy and emerging channel development for Amherst Corporate Computer Sales & Solutions, a provider of IT products and services, based in Merrimack, N.H.

"If capital spending is increased, at least a little bit going into Q1 and Q2, it will help the tech industry quite a bit," says Brown.

"The ones that weather the storm will get stronger and the ones that are struggling may find it even tougher to recover because they might not be able to invest in their offerings and they will have to change their business models," says Brown.

Some companies' business models, says Brown, had been based on an industry continuing to grow between 30 and 40 percent.

"Let's call a spade a spade, that's not going to happen any time soon," says Brown.

For the short-term, analysts say the effects from the rate cut today will not be felt for another six months. But executives say this move shows it wants to do everything to prevent the economy from continuing to slip into the deep end.

"I'm sure it will help our economy and it will make the ability for companies to make necessary investments," says Mark Hanny, vice president of software channel marketing for IBM's Software Group in Somers, N.Y.

Will the rate cut help the tech sector, and in particular, the telecom industry? Maybe, says Kastner.

One of the political problems that will surface very quickly is the need to deliver last-mile broadband to many more businesses and homes than the seven to 10 million that have this capability today, he says.

"Without broadband available to a wide segment of the economy, we do not foresee a huge up-tick in communications demand," says Kastner.

IBM's Hanny says he isn't deeply concerned about the effects on the market, although he will be monitoring it as the weeks and months pass.

"I wasn't even dwelling on how the market opened up today," says Hanny. "I agree with the way Warren Buffet worded it last night on 60 Minutes--if a stock or any asset you owned last week that you felt was a good investment, it's still a good investment," says Hanny.

"I think it's a positive move and it will help some firms," adds Hanny. "I'm sure it will help, like some of the other ones that have helped."