- The Federal Reserve had a divided vote to hold interest rates flat despite inflationary pressures.
- Affordability remains an issue for car shoppers.
The Federal Reserve maintained its benchmark interest rate near 3.6% — as it has the entire year — despite economic uncertainty related to the Iran war and inflationary pressure.
“Economic activity is expanding at a solid pace despite elevated uncertainty that owes, in part, to the conflict in the Middle East,” the Federal Open Market Committee said in a statement Wednesday.
The 12-person board was split, however, with three votes to raise the target federal funds rate by a quarter point.
Related: Is Now the Time to Buy, Sell, or Trade in a Car?
What It Means for Car Shoppers
What this means for car shoppers is no relief in the financing of stubbornly high car prices and aggressive lending schemes.
The average price of a new car has hovered near $50,000 for most of the year, and nearly six out of 10 borrowers now roll negative equity from an old car loan into their new car loan. Buying a new car before paying off the loan on your existing car typically creates higher interest payments over time and more debt.
Furthermore, lenders are approving more loans, and the share of loan terms exceeding 72 months hit a high not seen in a decade, according to Cox Automotive, parent company of Kelley Blue Book.
“Auto loan rates this year have barely budged,” Jeremy Robb, chief economist of Cox Automotive, said in a statement this week. “If benchmark rates continue to be held higher, lenders will have to adjust, and the results will be just another example of the rising cost for consumers, likely driving further demand in the more affordable vehicle segments we’ve already witnessed this year.”
The average new car price hit $49,758 in June, up $538 from May. Still, it was less than a 1% increase from June of 2025.
Shoppers don’t appear deterred by high prices and aggressive loan terms. Sales volume increased in July, marking the strongest sales month this year. The improvement prompted Cox Automotive analysts to forecast new vehicle sales to come in at a seasonally adjusted annual rate of 16.7 million vehicles for the month.
“Stubbornly high gas prices and historically weak consumer confidence have not discouraged new-vehicle buyers, as might be expected,” Charles Chesbrough, senior economist at Cox Automotive, noted Monday.
What’s the Fed Got to Do With It?
The Fed, or the board of the Federal Open Market Committee of the U.S. Federal Reserve, has direct influence over Americans’ finances.
The Fed controls a single interest rate — the rate for overnight loans between banks. But that rate influences the interest rates banks charge for everything from credit cards, mortgages, and auto loans. Markets move based on what investors think the Fed will do. Its job is to keep unemployment low and inflation in check so consumer prices don’t rise, triggering an economic slowdown and potential job losses.
“Job gains have kept pace with the workforce, and the unemployment rate has changed little,” officials said Wednesday.
Yet inflation remains elevated at about 3.5% this year. The inflation rate has exceeded the Fed’s target rate of 2% for five years now, the Associated Press reported Wednesday.
