Low interest rates may get few borrowers off sidelines

— -- Businesses and consumers say the new round of bond-buying announced by the Federal Reserve on Thursday will do little to speed the recovery, but could help on the margins.

The Fed made an open-ended commitment to buy about $40 billion each month in government mortgage-backed securities until job growth picks up significantly in an effort to lower mortgage rates and other borrowing costs for consumers and businesses.

In the short term, the Fed purchases are likely to lift stocks and increase housing sales and prices, boosting the net worth of many Americans. "To the extent that home prices begin to rise, consumers will feel wealthier, they'll feel more disposed to spend," Fed Chairman Ben Bernanke said.

Falling mortgage rates last spring substantially increased mortgage re-financings from March to July, according to TrimTabs Investment Research and the Mortgage Bankers Association.

Home refinancing has more than quadrupled in recent months at Lending Arizona, a Tucson brokerage, says broker Rocke Andrews.

As mortgage rates fell last May, Dwight Whitley, 64, of Tucson, refinanced his mortgage, cutting his rate to 4.2% from 5% and shaving $235 off his monthly payment.

He says he has used the savings to spend more than $7,500 on home improvements, such as refurbishing a guest house and adding a carport. He's also dining out about four times a week, up from twice-weekly.

"It's an appreciable difference," he says.

But Patty Napier, 65, of Wayzata, Minn., who expects to save $250 a month when she refinances her two-bedroom house, won't be using the extra cash to increase spending. Napier, a real estate broker, says her business has been "challenging" the past five years.

"I'm just being cautious," she says. "I'll just have more in my bank account in case I need it. ... It's hard to sell houses."

Many businesses say lower interest rates will not prod them to increase investment or hiring. Ninety-one percent of chief financial officers said a 1 percentage point drop in rates would not change their capital spending plans, according to a survey of 1,500 CFOs conducted before the Fed announcement by Duke University and CFO Magazine.

Clint Greenleaf, of Austin, would like to spend several million dollars to expand his book publishing company and a baby clothing business called Bambino Balls, hiring seven additional workers. But he worries that Congress won't be able to head off looming federal tax increases and spending cuts that could push the nation back into recession early next year.

A drop in interest rates, he says, would do nothing to ease those concerns, he says.

"The risk-reward scenario isn't there to make a huge bet," he says. "To invest the time and resources and have that evaporate -- that's pretty big bet to make."

Some other businesses, however, say a further decline in rates might prompt them to move up spending plans.

Michael Brey, owner of Hobby Works, intends to expand from five stores in Virginia and Maryland, adding another 15 outlets in the mid-Atlantic region by 2015.

Brey says he's seeking investors because he doesn't want to add to his existing debt. But if already-low borrowing costs fall another quarter to half a point, he would refinance his debt and borrow another $600,000 or so to open two stores -- and hire about 20 workers -- in about five months, instead of waiting at least a year to attract investors.

"Fed action is one piece of the puzzle and not an insignificant one," he says.