Southern Union Co president Thomas Karam applauded the US Federal Reserve's quarter-point interest-rate cut yesterday, because it allows the natural gas distributor to borrow more cheaply to invest in pipelines.
Federal Reserve policy makers reduced the benchmark US interest rate to 1.00 percent, the lowest since Dwight Eisenhower was president 45 years ago, in an effort to boost the economy and ward off deflation.
"For companies like ours, which spend a great deal of money year in and year out, this allows us a very infrequent opportunity to fix our cost of money well into the future," Karam said. "It offsets some of the negatives we've seen, particularly in our sector with higher and more volatile natural gas prices." Lower interest rates may save Wilkes-Barre, Pennsylvania-based Southern Union, millions of dollars a year after it refinances US$1.16 billion in new debt acquired in this month's purchase of the 10,000-mile Panhandle natural-gas pipeline system, Karam said.
The Federal Reserve's Open Market Committee cut the overnight bank lending rate for the 13th time since January 2001 to help boost an economy that has lost 324,000 jobs in six months and grew at just a 1.9 percent annual rate last quarter. The so-called federal funds rate is now the lowest since it averaged 0.68 percent in July 1958.
Brown-Forman Corp chief financial officer Phoebe Wood said the rate cut will be good for the maker of Jack Daniel's whisky and Lenox china.
"It signals more flexibility by the Fed to help get the economy back," Wood said in an interview. "And when the economy returns to health, we will benefit as a company, especially in our consumer durables area."
The company's consumer goods include Hartmann luggage, Dansk and Gorham tableware.
Not all executives were as optimistic, and some said other measures are needed to help spur the economy.
"The interest rate cut certainly can't hurt," Union Pacific Corp chief financial officer James Young said. "I'm not as optimistic that it will actually turn around consumer demand. The real key here is job creation and getting a national energy policy."
Omaha, Nebraska-based Union Pacific is the largest US railroad owner.
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