Interest rates will continue to climb, as the Federal Reserve\u2019s efforts to bring down inflation marches on.<\/p>\n\n\n\n
The Federal Reserve announced Wednesday an increase of 25 basis points in the target rate for the federal funds. The new target range is 4.5 to 4.75 percent. It was the eighth rate increase in the past year and followed previous hikes of three-quarters and half a point.<\/p>\n\n\n\n
The smaller increase followed positive economic news on inflation, falling from a high of 9 percent in June to 5 percent in the most recent numbers. The Fed\u2019s target rate is 2 percent.<\/p>\n\n\n\n
\n\u201cWe were at the highest inflation in 40 years and the job is not done,\u201d <\/p>\nJerome Powell, U.S. Federal Reserve Chair<\/cite><\/blockquote>\n\n\n\n
\u201cWe were at the highest inflation in 40 years and the job is not done,\u201d said U.S. Federal Reserve Chair Jerome Powell.<\/p>\n\n\n\n
\u201cWe\u2019re going to be cautious in declaring victory. We have a long ways to go. But we\u2019re now in a time of disinflation. It will take time to meet our goals.\u201d<\/p>\n\n\n\n
Powell and the Federal Open Market Committee signaled even more rate hikes may be necessary to combat ongoing inflation. The committee issued a forecast in December expecting rates to top out at 5 percent. The group will update that forecast in March.<\/p>\n\n\n\n
\u201cTo expect ongoing hikes would be appropriate,\u201d Powell said.<\/p>\n\n\n\n
The committee also expects to hold the restrictive rates in place longer.<\/p>\n\n\n\n
\n\u201cTo expect ongoing hikes would be appropriate.”<\/p>\nJerome Powell, U.S. Federal Reserve Chair<\/cite><\/blockquote>\n\n\n\n
\u201cIt would not be appropriate to expect us to cut rates this year,\u201d Powell said.<\/p>\n\n\n\n
The Fed has raised rates by 450 basis points in the past year. Powell said the economy is showing signs of the efforts to combat inflation starting to work.<\/p>\n\n\n\n
\u201cIt takes time to see the full effects,\u201d Powell said. \u201cWith the 25 basis points increase, it was a step down and shift to a slower pace to evaluate our efforts toward our goal.\u201d<\/p>\n\n\n\n
The core inflation rates were below 5 percent, as Powell noted improvements in supply chains helping to correct prices in areas of the economy.<\/p>\n\n\n\n
“The challenge for the Fed is to not go too far. We’ll be working with our contacts to continue to monitor the economy,” said Jeremy Beck, NIADA Vice President of Dealer Development. “The good news is the labor market continues to be strong, which is a sign of how the economy is truly doing.”<\/p>\n\n\n\n
The labor market continued to be strong. Unemployment remains near a record low, with job vacancies outpacing unemployment. There is also reasonable job growth.<\/p>\n\n\n\n
\u201cDisinflation has not come at the expense of a strong labor market,\u201d Powell said. \u201cUnemployment remains near a 50-year low and job vacancies are high.<\/p>\n\n\n\n
Even before the latest hike from the Fed, auto finance rates have continued to climb. According to Cox Automotive\u2019s January report, the average used rate up to 12.88 percent. Rates are up 52 basis points this year and 348 in the past year, driving payments up by 10 percent.<\/p>\n\n\n\n
“For used car dealers, while rates are increasing, they are starting to steady,” Beck said. “As car dealers we can now start to predict affordability for our customers to put them in the right vehicle and also manage our capital resources.” <\/p>\n\n\n\n
According to Experian\u2019s third quarter numbers, the average used vehicle monthly payment was $525 on a $28,506 note with a 68-month term.<\/p>\n\n\n\n
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