Ethan Allen CEO sees U.S. rate cut aiding consumers

ATLANTA (Reuters) - The chief executive of Ethan Allen Interiors (ETH.N) said on Wednesday the Federal Reserve's unexpected rate cut and a U.S. tax stimulus package can lift consumer confidence and encourage spending.

"Two important things are taking place," Farooq Kathwari said of the central bank and government moves in an interview.

Kathwari, who is also chairman of the furniture maker and retailer, said the 75-basis-point cut in the federal funds rate announced on Tuesday, which was bigger than many expected, "has impacted consumer confidence positively."

Ethan Allen reported better-than-expected quarterly profit on Wednesday, boosting its shares by about 15 percent. "Our consumers are still coming in," Kathwari told Reuters.

Still, he said recent negative headlines about problems in the financial and credit markets had affected consumer psyches. "Our customers are looking at their wealth and if their wealth goes down, they are concerned," he said.

Kathwari said important elements of any stimulus package would be to provide direct aid to consumers, perhaps in the form of rebates, and to address the subprime-mortgage crisis, which is having effects beyond home buyers with spotty credit.

But he also said it would be good if a stimulus package promoted business investment and included tax cuts.

"From a business point of view, I think encouraging businesses to invest is important," he said. "Sensible tax cuts would be helpful not only from a domestic perspective but also from the perspective of competing in the international world," especially with developing nations that offer corporate tax incentives.

Kathwari expected Ethan Allen, which has posted sales rises at a time when other publicly traded rivals reported declines, would continue to outperform. The company's sales were up less than 1 percent in its second quarter ended December 31.

"We have and will continue to take market share," he said.

Ethan Allen shares were up $3.82, or 15 percent, at $28.78 in afternoon New York Stock Exchange trading.

(Editing by Braden Reddall)