April 22, 2021

Fed move to keep benchmark interest rate may not help auto customers

Federal Reserve Chairman Jerome Powell said last week that the central bank’s benchmark interest rate won’t be raised until 2023, but the news won’t be much help to car buyers. Rather than a positive note, the move signals a slow economic recovery as the U.S. continues to grapple with the coronavirus pandemic.

While the fed’s interest rate remains near zero, Cox Automotive Chief Economist Jonathan Smoke said consumers haven’t seen substantially lower rates during the pandemic. As the boom in factory incentives of late March and April faded, rates in auto lending began to climb, Smoke said.

“The data clearly show that these low rates are not accessible to everyone,” Smoke wrote in a blog post Sept. 16. “Furthermore, as fiscal stimulus fades while unemployment remains high, loan performance is likely to deteriorate, leading to even further tightening at least in the short term as the economic direction remains uncertain.”

Economic activity, particularly consumer spending, has returned to near-normal levels, but Smoke said he wouldn’t call it a recovery. Without another round of stimulus, many of the positive trends playing out in the auto finance market likely will deteriorate. Without a solid plan to insulate the economy against the ongoing impact of the pandemic, vehicle sales could face further headwinds this year.