Forecasts by J.D. Power reveal that August's interest rates for new vehicle loans were slightly lower than the rates consumers received last year.
Driving the news: The average new vehicle buyer paid 6.9% interest on an auto loan in August, compared to 7.2% in August 2023, down 36 basis points from a year ago.
Yet, average monthly payments for new vehicles climbed to $729, up $4 year-over-year.
Why it matters: The slight drop in interest rates isn't translating into lower car payments, partly due to falling used car prices affecting consumer trade-in equity.
With the average used-vehicle retail price down 4.5% year-over-year to $27,999, trade-in equity has decreased by $1,433 to $7,774.
The good news for car buyers? With more vehicles filling dealership lots, prices are dropping. In July, the average transaction price for a new vehicle was $44,039 in August, a decrease of $1,895 or 4.1%, from a year ago. While these prices are still far from pre-pandemic levels, any decrease is a welcome relief for shoppers.
Looking ahead: The Federal Reserve is widely expected to announce a long-awaited interest rate cut at its next meeting on September 17-18, with economic indicators showing slowing inflation and a softening job market.
The real question is: How big will the cut be? According to Reuters, only four major brokerages are betting on a 50-basis-point cut, while nine are forecasting a smaller 25-basis-point reduction.
What they're saying: Loretta Mester, the former president of the Federal Reserve Bank of Cleveland, told CNBC a 50-basis-point cut is possible. However, she thinks the central bank will likely avoid a larger cut to avoid signaling that they delayed too long.
"[Jerome Powell] was very wise not to lock himself into a particular number…In my read, that would be 25 basis points, and a series of 25 basis points would be appropriate at this point, given where the economy is," she said.
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