The Federal Open Market Committee’s (FOMC) meeting today marks the last chance this year for the Federal Reserve to announce a hike in the benchmark federal funds rate, which has remained effectively at 0% since 2006.
If the Fed chooses to raise the rate by, say, 0.25% — as many anticipate it will — with that increase and later increases there will inevitably be some level of impact on consumer rates, Mark Kaczynski, president of Nissan Motor Acceptance Corp., told Auto Finance News in an interview in November.
“It’s going to be more expensive for us to lend,” because the captive’s own borrowing costs are likely to go up, Kaczynski said. “So in 2016 you’re going to see consumer rate trend up. Given the fact that they’ve been down so long, even with a modest increase you could see a psychological effect of, ‘Oh, rates are going up,’ and that will have some impact.”
Previously, in late October, the Fed decided not to raise rates yet, citing a softening in net exports and a slowdown in job gains among the main reasons for keeping rates flat.
“In determining whether it will be appropriate to raise the target range at its next meeting, the committee will assess progress — both realized and expected — toward its objectives of maximum employment and 2% inflation,” the Fed said in a statement at the time.
In the same statement, the Fed did not say definitively whether it would raise interest rates in the remaining months of 2015, however John Hyatt, head of dealer services at U.S. Bank, believes the industry as a whole is better equipped to handle upward movement in the rates now, compared with the years following the recession.
“Our industry is more prepared for a fluctuation in interest rates than we ever have been,” Hyatt told AFN. “You think back, and a lot of banks didn’t have the pricing tools that we have now, a lot of the banks were still on rate sheets. I think we’ll be able to maintain margins, because the market is more efficient now than it was then.”
The FOMC will meet today at 2pm, after which Federal Reserve Chairwoman Janet Yellen will speak at 2:30 p.m.
