Fed leaves rates unchanged, sees tighter policy through 2024

The U.S. Federal Reserve held interest rates steady on Wednesday but stiffened its hawkish stance, with a further rate increase projected by the end of the year and monetary policy kept significantly tighter through 2024 than previously expected.

As they did in June, Fed policymakers at the median still see the central bank’s benchmark overnight interest rate peaking this year in the 5.50-5.75 percent range, just a quarter of a percentage point above the current range.

But from there the Fed’s updated quarterly projections show rates falling only half a percentage point in 2024 compared to the full percentage point of cuts anticipated at the meeting in June. With the federal funds rate falling to 5.1 percent by the end of 2024 and 3.9 percent by the end of 2025, the central bank’s main measure of inflation is projected to drop to 3.3 percent by the end of this year, to 2.5 percent next year and to 2.2 percent by the end of 2025.

The Federal Reserve’s benchmark interest rate decisions affect the price lenders pay to borrow money, costs that might be passed on to consumers in the form of higher interest rates.

For the auto industry, interest rates were the No. 1 problem experienced by franchised dealerships during the third quarter, identified by 65 percent of retailers, up from 61 percent a quarter earlier, according to the latest Cox Automotive Dealer Sentiment Index poll. The Cox poll ran from July 24 to Aug. 8.

New-vehicle interest rates rose from 4.5 percent in March 2022 to 7.4 percent in August 2023; used-vehicle APRs went from 8.1 percent to 11.2 percent, according to Edmunds.

“Interest rates and bleak outlook for consumers makes them less prone to spending money,” a Toyota dealer in the Northeast told Cox.

Dealership finance-and-insurance departments might have a harder time capturing revenue from those sales if continuing higher interest rates send customers fleeing to cash deals or cheaper outside financing.

The percentage of dealer-financed sales dropped from 57 percent in the first quarter of 2022 to 52 percent in the second quarter of 2023, according to Edmunds. Leasing, which had become less popular for most of the past year and a half, returned to 22 percent in the second quarter, the same concentration as the start of 2022.

Dan Shine of Automotive News contributed to this report.