AURORA, Colo. — William Harris tapped his retirement savings to open A-Town Pizza, a Neapolitan pizzeria, in this Denver suburb three years ago. He borrowed $200,000 to open a second location this year and now employs 60 people. On a good Friday, his shops sell 1,200 pies.
In such stories, the Federal Reserve finds evidence that its seven-year campaign to reboot the American economy is succeeding. So on Wednesday, the Fed, which has held short-term interest rates near zero since December 2008, will most likely announce that it will start nudging rates upward, slowly ending what has amounted to a once-in-a-lifetime sale on money.
Mr. Harris, for one, is not ready. “It’s scary when you hear that the government is planning to slow things down,” the wiry 39-year-old said as he folded menus. “We live on people’s extra money. That’s the money they spend on pizza. And it still feels very fragile.”
Monetary policy is conducted in a language of bloodless abstraction, and most Americans pay little, if any, attention. But the Fed is about to make a big bet, and the decisions it makes in Washington have large consequences, here in Colorado and across the nation.
Janet L. Yellen, the Fed’s chairwoman, and her colleagues have concluded that the economy is finally strong enough to grow with a little less help from the central bank. Indeed, they worry inflation will rise too quickly if they do not start raising interest rates. The first rate increase will be small, then the Fed expects to raise rates about one percentage point a year for the next few years.
The Fed’s move is coming in the face of worries about the health of the stock market and falling commodities prices. Still, by itself, the increase probably will not matter much. The Fed is expected to set short-term rates in a range from 0.25 to 0.5 percent, a small jump from the current range of zero to 0.25 percent.
It is what follows that will make the difference.
Denver seems ready for higher rates. The area’s economy has enjoyed one of the nation’s strongest rebounds from the recession. The local unemployment rate fell to 3.1 percent in October. There are new skyscrapers downtown and new subdivisions in every direction. The former oil town is now at the center of one of the nation’s largest booms of technology start-ups.
Yet the local mood is fragile. Housing prices have climbed 24 percent above the precrisis peak, but whereas that once would have encouraged economic optimism, now people fret that home prices are due for a fall.
Optimists say that the economic expansion is just gaining steam and that modestly higher rates will probably not slow the region’s growth.
Pessimists see evidence of fragility in the same facts. Josh Downey, president of the Denver Area Labor Federation, says the resurgence of development has created construction jobs for a new generation of workers. They need cars to reach their jobs, and jobs to pay for their cars. “If those buildings stop going up in Denver, they’re going to be out of a job and a car,” he said.
Mark McKissick, director of fixed-income research at Denver Investments, says he is waiting to see how quickly the Fed raises rates before he adjusts the firm’s investment holdings. The economy, he says, does not seem strong enough to handle higher rates, and he expects the Fed to reach the same conclusion. Otherwise, he worries it could push the economy back into recession.
“The Fed threw a bunch of money into the financial system, but it hasn’t stimulated growth or inflation the way it might have in earlier periods,” he said.
Builders, for example, will start construction on about 9,000 single-family homes in the Denver metropolitan area this year, according to Metrostudy, a real estate research firm. That is up 14 percent from last year — but less than half the 20,000 home starts in the Denver area at the peak of the bubble in 2005.
Some workers will be getting raises. Bakery and deli clerks at King Soopers, a grocery chain, will earn a minimum wage of $10.50, an increase of as much as $2 an hour, under the terms of a new contract negotiated by the United Food and Commercial Workers Union. The previous four-year deal held wages steady.
Others, however, are still waiting for prosperity to affect them.
Ethel Ayo’s landlord raised her rent this year by $400 a month, to $1,126. Ms. Ayo has a part-time job as a home-care worker and her son, a college student, works at Enterprise Rent-a-Car. Together they can barely afford the rent — and then only because the landlord does not require full payment at the beginning of the month. “And you didn’t hear me talk about food,” Ms. Ayo said. “After I work two or three days, I buy $50 of food and make it last two or three weeks.”
Mr. Harris, the restaurateur, says Denver’s growth feels nothing like the boom he lived through in Southern California a decade ago. He is struggling to repay his start-up costs, particularly during the holidays, when people eat less pizza. The Fed will most likely raise rates before his risks have paid off. If it has overestimated the recovery and moves too fast, people would have less money to spend, and Mr. Harris said he could lose his restaurants and his retirement savings.
On South Broadway, a commercial strip south of downtown lined with dilapidated auto dealerships and freshly painted marijuana shops, those worries seem far away. Khalid Sarway, sales manager at Famous Motors, says he is selling about 25 used cars a month, and he does not think higher rates will bother his customers.
“The people, they don’t care about the rate,” said Mr. Sarway, who added that he was making more money now than in the best years before the recession. “They just want a vehicle. They just want to be able to get back and forth between their jobs and school, or whatever their lifestyle is.”
North of downtown, Denver’s tech entrepreneurs also see little immediate danger from higher rates.
Steve Adams, the 62-year-old chief executive of Leo Technologies, runs a start-up, his sixth, in a former produce warehouse that has been renamed Industry, where the nearest thing to manual labor occurs when people play table tennis in the atrium.
Uber has its Denver office in one corner of the sprawling building.
Mr. Adams is trying to raise $500,000 to test a biometric device that uses blood pressure readings to measure hydration levels — data he says could help athletes as well as people with medical conditions, like those on dialysis.
Like many of his peers, Mr. Adams thinks low rates have made it easier for young companies to raise money from investors seeking higher returns. Denver is also a technology frontier town, reliant on coastal capital, so it may be more vulnerable if the availability of funding begins to recede.
But Mr. Adams said he expected the money to keep flowing even as rates on safer investments like corporate bonds started to rise. “The people I’m pitching want to get in early and make a big multiple,” he said.
Some in the real estate business similarly insist that the local market will probably remain hot. Greg Geller, the owner of Vision Real Estate, says builders are struggling to keep pace with population growth because it takes years to find land, obtain permits and train replacements for workers laid off during the recession.
Others are less sanguine. Mitchell Goldman, the owner of Apex Homes, said customers rushed to buy houses in recent years because they worried prices would climb. Now people are holding back, wondering if prices will fall.
“I’ve been getting asked the question a lot, ‘Should we wait?’”
Mr. Goldman said he expected that higher rates would also push some buyers out of the market. The math, after all, is inexorable. If mortgage rates increase by one percentage point, the monthly cost of a $300,000 mortgage increases by $177.
He added that he was looking for land to build a home for his own family. They have moved several times in recent years, but with higher interest rates on the horizon, he wants to build “a more permanent forever home.”
“I’m a little more anxious,” Mr. Goldman said. “Interest rates are never going to be what they were when I was growing up, but every little bit makes a difference.”
