Fed holds interest rates steady as auto loan costs stay high
Fed votes to hold key interest rate at 3.75% to 4.00%. Forecasts point to a possible rate hike in December.
On the Dash:
- Fed votes to hold key interest rate at 3.75% to 4.00%, with two officials dissenting in favor of a hike.
- Auto loan costs keep climbing, J.D. Power projects a record $823 October payment.
- Dealers should plan for high financing costs as futures point to a December rate hike.
The Federal Reserve voted Wednesday to hold its benchmark rate at 3.75% to 4.00%. That leaves borrowing costs unchanged for dealers and car buyers after September’s hike. Two officials dissented in favor of another increase.
Futures markets suggest another increase in December, according to CNBC. That keeps financing costs in focus as dealers enter the year-end sales push.
Two officials dissent in favor of interest rate hike
Two of the 12 voting members dissented. Governor Lisa Cook and Cleveland Fed President Beth Hammack wanted a quarter-point increase. It was Cook’s first dissent since she joined the Fed in 2022.
Markets widely expected the hold, according to CNBC. The statement said inflation remains elevated. It described economic activity as expanding at a strong pace, up from “solid” in September.
Potential impacts for dealers
While the Fed does not set auto loan rates directly, its moves tend to push financing costs the same way over time.
Dealers should expect financing costs to stay high through year-end. A December increase would add to record payments. Buyers often shop the monthly payment. Incentives, subvented rates and lower-priced inventory can help deals get done.
Used-vehicle buyers face rates above 10%, according to Edmunds. Pre-owned vehicle dealers may want to take a closer look at inventory and consider stocking some lower-priced units as rising rates increase monthly payments.
Meanwhile, F&I teams should review lender rate sheets and floorplan costs now, ahead of a possible December increase.
Inflation, growth and what comes next
Inflation has been above the Fed’s 2% target for more than five years, and the pace of price increases has picked up since September, according to CNBC. The unemployment rate remains low. The Atlanta Fed’s GDPNow tracker points to 3.4% annualized growth in the third quarter, which would be the strongest in a year.
Futures market pricing shows a strong chance of another increase at the December meeting, and possibly one or two more in 2027, according to CNBC.
Fed Chairman Kevin Warsh also announced a change to the 2027 meeting schedule at his news conference. The Fed will still hold eight meetings. One will focus only on broad monetary policy strategy, with no vote on the federal funds rate and no policy statement. Warsh said he expects two strategy meetings and six policy meetings in 2028.
The decision came less than a week before the Nov. 3 midterm elections, which will determine control of Congress.