Interest rate cuts to keep IT projects rolling

The immediate effect of the Federal Reserve's interest rate cuts may be green lights for IT projects and initiatives; however, IT managers and their suppliers will have to keep an eye on whether or not demand returns for the offerings of both sectors, said analysts and users.

In surprise moves last week, the U.S. Central Bank cut the federal funds rate half of a percentage point to 6 percent, and trimmed the discount rate a quarter of a percentage point to 5.5 percent. This unexpected action, combined with the recent financial woes of many high-tech companies, fueled speculation that the economy is headed for a recession.

Market conditions aside, users such as Frank Petersmark, CIO of Amerisure, a large regional insurance company in Southfield, Mich., said the company will still need to spend more on IT projects. But the economy will have an impact on these needs, Petersmark said.

"We think we can [increase IT spending] as long as we increase our premium sales, and that is what we have done the last couple of years," Petersmark said.

"But if the [market] really goes south, our customers go south, and one of the first things people do when they don't have any money is cancel their insurance policies," Petersmark added.

Despite speculation about a recession, other users welcomed the interest rate cuts, saying the action allows them to apply the brakes-for now-on any plans to scale back spending on IT projects.

"Yes, [falling interest rates] is a good thing," said one high-level executive at a Fortune 10 company, who requested anonymity. "Otherwise we might have had to contract out some of our IT projects. We'll continue with our plans as set before the downturn. We won't kill some things that we might have killed."

Overall, major projects such as those for e-business initiatives and enterprisewide software and hardware upgrades, as well as application integration efforts, will continue to be approved in the wake of the lending rate cuts, according to analysts.

For projects that have a well-defined ROI and revenue enhancement goals, caution may be the byword, said David Dobrin, an analyst at Surgency, a consultancy in Cambridge, Mass.

Enterprises "may have to rethink the business cases" of their plans, Dobrin said. They may also want to take a "contrarian" view by reconsidering these projects as "transformational," he added.

"They should view these projects as more of a preparation to take advantage of the full upswing to come," Dobrin said.

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Economic slowdown to test net execs' mettle
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