For people who save and people who borrow, the impact of Friday's big cut in interest rates will show up quickly.

Bank lending rates will drop, although not as rapidly as rates paid out on certificates of deposit and other forms of savings.

The Federal Reserve slashed its benchmark discount rate by a full percentage point, to 3.5 percent, and banks across the country responded with full-point cuts in their prime rates, to 6.5 percent.

Besides the impact on depositors and borrowers, the significance of the lower interest rates will be felt indirectly by most Americans, who can only hope that the central bank's strategy will tempt businesses to expand and create new jobs.

"It's not a panacea," said Murray L. Weidenbaum, who was President Ronald Reagan's top economic adviser in 1981-82. "Economies, like elephants, don't turn around that quickly."

But Weidenbaum said the Fed's move "strengthens the underlying economy" by lowering costs for business.

"This makes it more likely that the average worker will keep his or her job," said Weidenbaum, director of the Center for the
Study of American Business at Washington University in St. Louis.

Whether Americans will buy that argument is a tricky question. But the Fed is clearly hoping for a psychological effect.

"They're hoping that this is going to clear away the cobwebs of gloom and doom," said Robert E. Litan, a senior fellow at the Brookings Institution in Washington. "It's a good Christmas gift."

Some consumers clearly will have more money in their pockets as a result of Friday's rate cut.

As banks follow the Fed and slash their prime lending rates, holders of home-equity loans will see their monthly payments drop.

For a typical $50,000 loan, a one-point drop in the interest rate translates into savings of $42 a month.

The interest-rate cut also will likely add to the wave of home refinancings, which already account for more than half of all mortgage activity.

But on the down side, people who rely on interest income could be in trouble, said Robert Heady, publisher of Bank Rate Monitor.

"By Valentine's Day, they (consumers) will be seeing some savings-rate numbers that may remind you of when (Franklin D.) Roosevelt was president," Heady said.

With more than $400 billion on deposit in savings accounts nationwide, dropping interest rates have cost consumers $20 billion in lost income within the last year, he said.

While banks and other businesses may enjoy a boost, consumers account for two-thirds of the nation's economic activity, Heady said.

"Until consumers gain confidence and begin to spend," he said, "the recovery may not happen."

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