Lenders should prep for gradual interest rate hikes through 2016, Sarah House, vice president and economist at Wells Fargo Securities, told Auto Finance News.
The Federal Open Market Committee in effect announced a 25-basis-point increase in the federal funds rate, from 0% on Wednesday.
While that first move will not have any considerable effect in the near term, “companies need to look at where the rates are going when planning future investments, and how it will affect the demand in the long run,” House said.
“We expect three more rate increases between now and end of 2016, ending at, I believe, 1% to 1.25%,” she said.
Fed Chair Janet Yellen said in a press conference Wednesday that small rate increases would likely take place through 2016, but she said interest rates would “remain low by historical standards and likely rise only gradually over time.”
Many auto lenders were prepared for the rate hike long before the announcement, House said. “We see lenders already raising their prime rates, and we will see more of this,” she said.
Following the Fed decision, Wells Fargo increased its prime rate to 3.5% from 3.25% effective Thursday, the first increase for the bank since 2008. BMO Harris, Suntrust Banks, Huntington Bank and other banks also increased their prime rates.
The story originally appeared in Auto Finance News Update. Subscribe to receive more exclusive stories in your inbox.
