The Federal Open Market Committee delivered a cut to interest rate for a second straight meeting Thursday.
The FOMC announced it was reducing the federal target interest rate by a quarter of a percent, 25 basis points, to 4.5 to 4.75 percent. Since September, rates have now been cut by 75 basis points from a peak of 5.25 to 5.5 percent.
“This further recalibration of our policy stance will help maintain the strength of the economy and the labor market and will continue to enable further progress on inflation as we move toward a more neutral stance over time,” said Federal Reserve Chairman Jerome Powell.
‘We know that reducing policy restraint too quickly could hinder progress on inflation. At the same time, reducing policy restraint too slowly could unduly weaken economic activity and employment. In considering additional adjustments to the target range for the federal funds rate, the Committee will carefully assess incoming data, the evolving outlook, and the balance of risks. We are not on any preset course. We will continue to make our decisions meeting by meeting.”
Before the September cut, the Federal Reserve held rates steady for nine straight meetings, starting in mid-2023. The Federal Reserve raised rates by 525 basis points from early 2022 through last summer in an effort to bring down inflation, which peaked at above 9 percent.
Powell pointed out inflation was at 2.1 percent annually. The core inflation, minus energy and food prices, is at 2.7 percent annually and 2.3 percent for the past three and six months.
“Inflation has moved much closer to our 2 percent longer-run goal, but core inflation remains somewhat elevated,” Powell said. “Longer-term inflation expectations appear to remain well anchored, as reflected in a broad range of surveys of households, businesses and forecasters, as well as measures from financial markets.”
Inflation did tick up in October. According to numbers released Wednesday by the Bureau of Labor Statistics, inflation was at a 2.6 percent annual rate and 3.3 percent for the past 12 months on the all-items-less-food-and-energy index.
The labor market has cooled in the past two years. The BLS reported unemployment was at 4.1 percent at the end of October. The economy also added only 12,000 jobs in October.
Powell said the committee remains on the path between remaining too restrictive and weakening the labor market and reducing rates too quickly and seeing inflation increase again.
“We’re trying to stay on the middle path where we can maintain the strength in the labor market while enabling further progress on inflation,” Powell said.
He also pointed out the relative strength of the American economy compared to other developed nations. The gross domestic product grew by 2.8 percent in the third quarter and is on pace for 2.5 percent growth for the year.
“This is a strong economy. It’s remarkable how well the U.S. economy has been performing with strong growth, strong labor market and inflation coming down,” Powell said. “We’re performing better than any of our global peers.”
When asked if that message is translating to the American people, Powell recognized that prices remain elevated and it will take time for people’s perspectives to change.
“The economy is performing well, but we also know that people are still feeling the effects of high prices,” Powell said. “We went through and the world went through a global inflation shock. Inflation went up everywhere and it stays with you because the price level doesn’t come back down. What that takes is some years of real wage gains for people to feel better and that’s what we are trying to create and I think we are well on the road to creating that. Inflation has come way down and the economy is still strong. Wages are moving up but at a sustainable level. What needs to happen is happening but it’ll be some time before people regain their confidence and feel that. We don’t tell people how to feel about the economy. We respect what they’re feeling. Those feelings are true, and they’re accurate.”
As the Federal Reserve has now cut its target rate by 75 basis points, those changes have slowly impacted the used vehicle financing segment. According to Cox Automotive Chief Economist Jonathan Smoke, used vehicle finance rates are down 55 basis points year-over-year and have dropped 90 basis points from their peak in February.
For the second quarter of 2024, Experian estimated the average interest rate was 12.01 percent on a used vehicle purchase. The monthly payment was $525 with $26,248 financed over 67.41 months. The total price was down almost $1,100 and the payment decreased by $11 in the past year.
