- The Federal Reserve left its benchmark interest rate unchanged yesterday.
- The move won’t help car shoppers with affordability problems, but it has been easy to get approved for a car loan in recent months.
The Federal Reserve chose to leave interest rates unchanged at its January meeting yesterday, meaning no help to car shoppers facing historic affordability issues.
But there is good news in the credit market. Though new car prices are at an all-time high, it remains relatively easy to qualify for a car loan in the current market.
Related: Is Now the Time to Buy, Sell, or Trade-In a Car?
“With auto loan rates edging higher and the Fed on hold until at least June, dealers face an extended period managing affordability pressures,” explains Cox Automotive Interim Chief Economist Jeremy Robb. Dealers discounted the average car by 7.5% last month, but buyers still paid an average of $50,326.
“Improving credit conditions and higher tax refunds should provide some support heading into spring,” he notes. Cox Automotive is the parent company of Kelley Blue Book.
Explaining the Fed
- The Federal Reserve, a quasi-government agency, sets the interest rate for overnight loans between banks.
- That rate then affects the rates lenders charge for all types of credit.
The Federal Open Market Committee of the U.S. Federal Reserve, commonly called “the Fed,” sets the rate for overnight loans between banks. Banks then use that rate to calculate the rates they will offer Americans for mortgages, credit cards, car loans, and other financial products.
The president appoints members, and Congress confirms them. Once Fed members are in their seats for 14-year terms, they have complete independence and don’t answer to any branch of government.
Fed members are fond of saying they have a “dual mandate” — a charge to keep unemployment low and prices stable. They traditionally have independence from political branches of the government on the theory that they should take a long-term view of both, while presidents might prefer short-term decisions.
The Fed has been operating under extraordinary conditions this year. President Donald Trump has attempted the unprecedented move of firing a board member mid-term. That member, Lisa Cook, is still serving on the board while America awaits a Supreme Court decision on whether she can continue to serve.
Trump has also targeted Fed Chair Jerome Powell with a recent investigation. Powell’s term expires in May, and Trump is reportedly considering several candidates to replace him.
