The Federal Reserve reduced the target federal funds rate to 1.75% Wednesday, its second quarter-point reduction since late July.
The July cut was the first since 2008, but neither was unexpected. The Fed and its chairman, Jerome Powell, have pledged to take all appropriate steps to maintain consumer confidence in the face of economic uncertainty.
Cox Automotive’s chief economist, Jonathan Smoke, said he didn’t expect the Fed’s latest move to match the impact of the July cut for auto manufacturers or dealers.
“Short-term rate policy does not directly impact longer-term rates on consumer loans like mortgages and vehicle loans,” Smoke wrote in a statement, noting a “risk premium” accounts for the divergence between auto finance and the mortgage and bond segments. “About 20% of auto finance is subprime. While the 10-year Treasury yield was dropping in August, subprime auto loan rates increased on average by more than 20 basis points.”