Federal Reserve Cuts Interest Rate, May Benefit Car Buyers

As Ford Authority reported yesterday, the Federal Reserve has been mulling additional interest rate cuts as inflation has cooled slightly as of late, which is obviously good news for anyone looking to borrow money. This could potentially include car shoppers, who for years have been slammed by not only ever-increasing insurance premiums, but also, sky-high prices and interest rates – making it more expensive than ever to purchase a new (or used) vehicle. The Fed originally increased rates in an attempt to calm inflation, but strong demand for homes and vehicles has largely mitigated that impact, though now, the agency has indeed chosen to move forward with its plan to cut rates.

According to the Associated Press, the Federal Reserve has cut its key interest rate by a quarter percent, as expected, following a half-point cut that occurred in September. That takes the rate down to around 4.6 percent as inflation has declined from 9.1 percent in mid-2022 to 2.4 percent this past September. Policymakers project making additional interest rate cuts over the final two months of the year, as well as around four more in 2025.

It remains to be seen if this move – and planned future cuts – have a big impact on new vehicle affordability, which has continuously soared to new heights over the past few years amid historic inflation, record-high used and new vehicle pricing, and lofty interest rates. However, over time, auto interest rates should decline with these moves, which could certainly help car buyers.

According to recent data from Cox Automotive, September’s interest rate cut resulted in a decline in the average auto loan rate – by 30 basis points to 9.53 percent, which was the lowest such figure in over a year. However, that drop was offset by a 0.8 percent increase in average new vehicle pricing, though that was also covered by higher incentives and wage growth in terms of new vehicle affordability, which resulted in a middling improvement in that regard over the past couple of months.