Analysts don’t expect much, if any, immediate effect on auto finance and consumer demand for autos, now that the Federal Open Market Committee today hiked the target for its benchmark federal funds rate by 0.25%, as expected.
“The initial move should have barely any impact on longer-term interest rates, such as mortgages and auto loans,” said Carl Riccadonna, chief U.S. economist for Bloomberg Intelligence. “If the Fed is hiking, they’re doing it on a stronger economy, which should be good for auto loans,” he told Auto Finance News on Tuesday.
“It will take several more hikes to actually start applying the brakes on sectors such as autos and housing,” he said. “I believe there is still significant pent-up demand in the auto sector, as reflected in the average age of the national fleet.”
Tom Webb, chief economist at Cox Automotive, the parent company of Manheim, Kelley Blue Book, and Autotrader, made similar comments today, predicting little effect on auto finance. “Even after several rate hikes, the cost of funds will remain exceptionally low and captive lenders won’t find it overly expensive to buy rates down to today’s attractive 0% offers,” Webb said.
Today’s hike is the first increase since 2006, and the first time in six years the effective rate is expected to be above 0%, analysts said.
The Fed doesn’t actually set the rate, it sets a target range, although the net effect is the same. The FOMC said today in a written statement, “Given the economic outlook, and recognizing the time it takes for policy actions to affect future economic outcomes, the Committee decided to raise the target range for the federal funds rate to ¼ to ½%,” from the previous range of 0% to ¼%.
