{"id":429693,"date":"2023-06-07T16:29:07","date_gmt":"2023-06-07T20:29:07","guid":{"rendered":"https:\/\/www.automoblog.com\/?p=429693"},"modified":"2023-11-21T10:29:41","modified_gmt":"2023-11-21T15:29:41","slug":"will-auto-loan-rates-go-down-june-rate-hike-skip","status":"publish","type":"post","link":"https:\/\/www.automoblog.com\/will-auto-loan-rates-go-down-june-rate-hike-skip\/","title":{"rendered":"Will Auto Loan Rates Go Down With a June Rate Hike Skip?"},"content":{"rendered":"\n<p><strong><em>Affiliate Disclosure:<\/em><\/strong><em> Automoblog and its partners may earn a commission if you get an auto loan through the lenders outlined below. These commissions come to us at no additional cost to you. Our research team has carefully vetted dozens of auto lenders. See our <\/em><a href=\"https:\/\/www.automoblog.com\/about\/privacy-policy\/\"><em>Privacy Policy<\/em><\/a><em> to learn more.\u00a0<\/em><\/p>\n\n\n\n<p>The Federal Reserve is signaling that it may skip a much-rumored rate hike following its <a href=\"https:\/\/www.federalreserve.gov\/monetarypolicy\/fomccalendars.htm\" target=\"_blank\" rel=\"noreferrer noopener\">upcoming June 13-14 meeting<\/a>. That would mean that the current federal funds rate of 5.0-5.25% would remain in place until at least the following meeting on July 25-26.&nbsp;<\/p>\n\n\n\n<p>A decision to skip another increase to the federal interest rate would indicate that the past year-plus of aggressive interest-raising may be nearing an end. It could also signal the beginning of an end to the rapid increase in auto loan rates that has coincided with increases to the federal funds rate \u2013 and perhaps that car loan rates may be on their way down in the near future.<\/p>\n\n\n\n\n\n<h2 class=\"wp-block-heading\">Auto Loan Rates Are Still Climbing<\/h2>\n\n\n\n<p>Since the first hike in the current series in March 2022, consumer auto loan interest rates have risen alongside those rate hikes. At the time of the first funds rate increase, the <a href=\"https:\/\/fred.stlouisfed.org\/series\/RIFLPBCIANM60NM\" target=\"_blank\" rel=\"noreferrer noopener\">average interest rate on a 60-month loan was 4.52%<\/a>, while the <a href=\"https:\/\/fred.stlouisfed.org\/series\/FEDFUNDS\" target=\"_blank\" rel=\"noreferrer noopener\">funds rate was 0.2%<\/a>. In February 2023, 11 months later, the average auto loan rate had risen to 7.48%, while the funds rate had increased to 4.57% \u2013 a 65% increase to auto loan rates and a 2,185% increase to the federal rate.<\/p>\n\n\n<div class=\"visualizer-front-container visualizer-lazy-render\" id=\"chart_wrapper_visualizer-429598-1885337682\"><style type=\"text\/css\" name=\"visualizer-custom-css\" id=\"customcss-visualizer-429598\">.locker,.locker-loader{position:absolute;top:0;left:0;width:100%;height:100%}.locker{z-index:1000;opacity:.8;background-color:#fff;-ms-filter:\"progid:DXImageTransform.Microsoft.Alpha(Opacity=80)\";filter:alpha(opacity=80)}.locker-loader{z-index:1001;background:url(https:\/\/www.automoblog.com\/wp-content\/plugins\/visualizer\/images\/ajax-loader.gif) no-repeat center center}.dt-button{display:none!important}.visualizer-front-container.visualizer-lazy-render{content-visibility: auto;}.google-visualization-controls-categoryfilter label.google-visualization-controls-label {vertical-align: middle;}.google-visualization-controls-categoryfilter li.goog-inline-block {margin: 0 0.2em;}.google-visualization-controls-categoryfilter li {padding: 0 0.2em;}.visualizer-front-container .dataTables_scrollHeadInner{margin: 0 auto;}.visualizer-editor-front-container{position:relative;width:auto;margin:5%;background:#fff}.visualizer-editor-front{overflow:hidden;width:100%;height:500px}.visualizer-editor-front-actions{padding-bottom:3px}.visualizer-editor-save,.visualizer-editor-cancel{margin:0 4px;padding:2px 15px}.visualizer-cw-error .visualizer-actions{display:none !important;} <\/style><div id=\"visualizer-429598-1885337682\" class=\"visualizer-front  visualizer-front-429598\"><\/div><!-- Not showing structured data for chart 429598 because license is empty --><\/div>\n\n\n<div style=\"height:31px\" aria-hidden=\"true\" class=\"wp-block-spacer\"><\/div>\n\n\n\n<p>The increase has been a major factor in <a href=\"https:\/\/www.automoblog.com\/affordability-crisis-auto-industry\/\" target=\"_blank\" rel=\"noreferrer noopener\">the affordability crisis<\/a> that the automotive industry has been facing over the past three years. While <a href=\"https:\/\/www.automoblog.com\/reviews\/news\/semiconductor-shortage-explained\/\" target=\"_blank\" rel=\"noreferrer noopener\">supply chain issues<\/a> and demand have elevated the sales price of cars, the surge in auto loan rates has substantially increased the cost of borrowing money to finance those purchases.&nbsp;<\/p>\n\n\n\n<p>As a result, the affordability of cars has decreased significantly over that same time period. Cox Automotive uses median weeks of income needed to purchase a new car as its primary affordability metric. Despite a slight drop (less than one percent) in the amount of weeks needed to purchase a car from March to April, <a href=\"https:\/\/www.coxautoinc.com\/market-insights\/april-2023-vai\/\" target=\"_blank\" rel=\"noreferrer noopener\">the current rate of 42.9 weeks<\/a> is still 4.9% higher than it was in April 2022, and nearly 27% higher than in April 2021.<\/p>\n\n\n\n<p>The decrease in affordability is still a major challenge for the automotive industry, said Cox Automotive Chief Economist Jonathan Smoke.<\/p>\n\n\n\n<p>\u201cThough we are seeing some slight improvement in our index, affordability challenges are still a major barrier to the new-vehicle market,\u201d said Smoke. \u201cWe continue to see subprime buyers squeezed out of the auto market by the Fed repeatedly moving rates higher. The 10 consecutive rate increases have limited who can buy vehicles to mostly high-income, high-credit-score buyers.\u201d<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Why the Fed May Decide To Skip a Rate Hike in June<\/h2>\n\n\n\n<p>The Federal Reserve (Fed) began signaling that it would likely choose not to raise the federal funds rate at its June meeting in May. On May 19, <a href=\"https:\/\/apnews.com\/article\/inflation-federal-reserve-recession-powell-b9183023e3437b70b250cecede31aaaf\" target=\"_blank\" rel=\"noreferrer noopener\">Federal Reserve Chairman Jerome Powell alluded<\/a> to a potential rate hike skip at a Fed conference in Washington. Then, <a href=\"https:\/\/apnews.com\/article\/federal-reserve-inflation-recession-powell-50be3ad208848b75df2498aa5da6156b\" target=\"_blank\" rel=\"noreferrer noopener\">Fed Governor Philip Jefferson gave an even stronger hint<\/a> that the rate would not change in a speech on May 31.<\/p>\n\n\n\n<p>Both officials suggested that the pause in rate hikes would allow the Fed to evaluate the nation\u2019s current financial condition.<\/p>\n\n\n\n<p>\u201cHaving come this far, we can afford to look at the data and the evolving outlook and make careful assessments,\u201d said Powell.<\/p>\n\n\n\n<p>Jefferson made similar comments in his speech, when he said that \u201cSkipping a rate hike at a coming meeting would allow [Fed policymakers] to see more data before making decisions.\u201d<\/p>\n\n\n\n<p>Over the past 14 months, <a href=\"https:\/\/fred.stlouisfed.org\/series\/FEDFUNDS\" target=\"_blank\" rel=\"noreferrer noopener\">the Fed has implemented 10 rate hikes<\/a>, pushing the funds rate to 5.0-5.25%, its highest in over 16 years. Increases to the funds rate were designed to cool the economy and temper inflation, which had exceeded 8% in 2022. While inflation has slowed since the rate hikes began, the most recent reported rate in April of 4.4% is still well short of the Fed\u2019s stated target of 2%.<\/p>\n\n\n\n<p>The failure to meet that goal is one of the reasons other voices at the Fed have expressed reservations about a June rate hike skip. In a recent interview with the Financial Times, <a href=\"https:\/\/apnews.com\/article\/federal-reserve-inflation-recession-powell-50be3ad208848b75df2498aa5da6156b\" target=\"_blank\" rel=\"noreferrer noopener\">President of the Cleveland Fed Loretta Mester expressed skepticism<\/a> over a potential pause.<\/p>\n\n\n\n<p>\u201cI don\u2019t really see a compelling reason to pause \u2013 meaning wait until you get more evidence to decide what to do,\u201d said Mester. \u201cI would see more of a compelling case for bringing (rates) up.\u201d<\/p>\n\n\n\n<p>The dissent of Mester and other officials means that a June rate hike is still possible. However, following Jefferson\u2019s speech on May 31, speculators on Wall Street set the odds of a rate hike skip at 65% after setting the odds of a rate increase happening at 70% earlier that same day.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">Would a Rate Hike Skip Mean Auto Loan Rates Will Come Down Soon?<\/h2>\n\n\n\n<p>Consumer lending rates are directly tied to the federal funds rate. As a result, the short-term future of auto loan rates depends heavily on the Fed\u2019s decision at the June meeting.&nbsp;<\/p>\n\n\n\n<p>If the Fed decides to raise the funds rate in June, <a href=\"https:\/\/www.automoblog.com\/reviews\/loans\/federal-interest-rate-auto-loan\/\" target=\"_blank\" rel=\"noreferrer noopener\">increases to auto loan rates<\/a> will almost certainly follow. Similarly, auto lending rates will likely remain the same if the Fed decides to skip a rate hike, at least until the July meeting.<\/p>\n\n\n\n<p>But a rate hike skip likely won\u2019t mean that the federal funds rate has reached its peak, or that the current cycle of increases is coming to an end \u2013 at least according to Jefferson.<\/p>\n\n\n\n<p>\u201cA decision to hold our policy rate constant at a coming meeting should not be interpreted to mean that we have reached the peak rate for this cycle,\u201d he said in the same speech on May 31.&nbsp;<\/p>\n\n\n\n<p>That means that it\u2019s also likely that auto loan rates have not reached their peak, even if the Fed decides to keep the federal funds rate in place. In other words, there is no indication that auto lending rates will drop any time soon.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">When Will Auto Loan Rates Start to Come Down?<\/h2>\n\n\n\n<p>Economists suggest that auto lending rates aren\u2019t likely to come down in 2023. That said, our research revealed few solid predictions relating to when the rates actually will start to come down. The best indicator of where auto loan rates are heading is the federal funds rate. When institutional borrowing rates go down, consumer lending rates will follow. However, predicting when the federal funds rate will reverse course is much more complicated.<\/p>\n\n\n\n<p>In December 2022, <a href=\"https:\/\/www.reuters.com\/markets\/us\/fed-policymakers-see-one-more-rate-hike-this-year-cuts-2024-2023-03-22\/\" target=\"_blank\" rel=\"noreferrer noopener\">policymakers at the Fed predicted<\/a> that the funds rate would reach a target of 4.1% by the end of 2024. That would be a nearly 24% decrease from the current rate.<\/p>\n\n\n\n<p>However, that prediction may not hold. Since December, inflation has risen from then 3.3% to 4.4% in April, meaning that the rate is trending in the wrong direction. Since the federal funds rate has been one of the main tools used to try and tame inflation, the Fed could choose to continue increases or hold at the current rate until inflation numbers come closer to the target.<\/p>\n\n\n\n<p>Fed officials have been extremely clear about their goal of bringing the inflation rate under 2%. If the inflation rate reverses its current trajectory and begins to approach that number, there is a good chance that rate cuts may be on the way.<\/p>\n\n\n\n<p>However, inflation isn\u2019t the only concern for officials. A larger-than-expected impact from tightening credit and increased borrowing costs could also cause the Fed to consider lowering rates again to stimulate the economy.&nbsp;<\/p>\n\n\n\n<p>The simplest answer to when auto loan rates will start to come down is to watch the Fed. Officials have suggested that a June rate hike skip won\u2019t imply that rates will come down soon. But should that be the decision, it could indicate a reassessment of the current economic situation and perhaps the Fed\u2019s strategy. If nothing else, it will mean that auto loan rates won\u2019t go up again \u2013 at least for another month.<\/p>\n","protected":false},"excerpt":{"rendered":"<p>Affiliate Disclosure: Automoblog and its partners may earn a commission if you get an auto loan through the lenders outlined below. These commissions come to us at no additional cost to you. Our research team has carefully vetted dozens of auto lenders. See our Privacy Policy to learn more.\u00a0 The Federal Reserve is signaling that it may skip a much-rumored rate hike following its upcoming June 13-14 meeting. That would mean that the current federal funds rate of 5.0-5.25% would [&hellip;]<\/p>\n","protected":false},"author":174,"featured_media":429696,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"_acf_changed":false,"_lmt_disableupdate":"","_lmt_disable":"","footnotes":""},"categories":[58163,43031],"tags":[],"model":[],"acf":[],"modified_by":"Kristin McClure","_links":{"self":[{"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/posts\/429693"}],"collection":[{"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/users\/174"}],"replies":[{"embeddable":true,"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/comments?post=429693"}],"version-history":[{"count":0,"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/posts\/429693\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/media\/429696"}],"wp:attachment":[{"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/media?parent=429693"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/categories?post=429693"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/tags?post=429693"},{"taxonomy":"model","embeddable":true,"href":"https:\/\/www.automoblog.com\/wp-json\/wp\/v2\/model?post=429693"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}