Friday, 02 August 2019 20:06

Experts Dissect Potential Impact of First Interest-Rate Cut in 11 Years

Written by Nick Zulovich, Auto Remarketing


As widely expected, the Federal Reserve cut the target range for the federal funds rate by 25 basis points to two percent, marking the first downward move by the Federal Open Market Committee (FOMC) in 11 years.


A trio of experts who view the economy through the automotive prism and share their analysis with SubPrime Auto Finance News generally approved the action by policymakers carried through by a seven-two vote. However, this group is waiting to see what kind of material impact might develop as consumers continue to use auto financing for their vehicle purchases.


“Although expected to be down relative to 2018, U.S. light-vehicle sales remain at a fairly healthy level,” said Mike Wall, executive director of automotive analysis at IHS Markit. “Nevertheless, vehicle affordability concerns driven by rising interest rates, moderating OEM incentives and rising average transaction prices have presented headwinds for the market.


“Overall, sales have been fairly resilient, yet somewhat volatile month-to-month,” continued Wall, who was among the speakers during the recent Automotive Intelligence Summit. “The Fed’s decision to reduce interest rates by a quarter point is expected to provide a modest level of near-term relief relative to the aforementioned affordability pressures, although likely not enough to significantly alter the overall light-vehicle demand outlook for the market.”


This week’s action arrived after the Fed kept the rate steady after each of its chances to make a move earlier this year as well as lifting the rate four times in 2018.


KAR Auto Services Chief Economist Tom Kontos told SubPrime Auto Finance News that these rate cuts will help the economy.


“New- and used-vehicle sales and wholesale used-vehicle prices will all benefit,” Kontos said. “In fact, lower payments in a payment-driven industry like automotive are always helpful.


Cox Automotive Chief Economist Jonathan Smoke shared his perspectives in a blog post. Smoke, who came to the company from the real-estate space two years ago, leveraged his mortgage background to examine how the Fed’s move might influence auto financing.

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