The Federal Reserve cut the benchmark interest rate by a quarter point last week, lowering the Fed Funds Rate to 4.0–4.25%.
Driving the news: Fed Chairman Jerome Powell cited softening labor market conditions as justification for the cut, with the central bank forecasting two additional rate reductions in 2025.
"I think we were right to wait and see how tariffs and inflation and the labor market evolved," Powell said during a press briefing. "We're now reacting to the much lower level of job creation."
The disconnect: Despite easing monetary policy, auto financing costs have risen for car buyers due to specific market dynamics:
Reduced manufacturer incentives as tighter inventory limits promotional financing
Growing subprime loan volumes combined with higher subprime rates (in part, thanks to student loans)
Vehicle demand strength that supports higher lending rates
OUTSMART THE CAR MARKET IN 5 MINUTES A WEEK
No-BS insights, built for car dealers. Free, fast, and trusted by 55,000+ car dealers.
By the numbers: New vehicle loan rates jumped 34 basis points to 9.43% in September, while used loan rates climbed 22 basis points to 14.15%, per Cox Automotive chief economist Jonathan Smoke. Year-to-date, new vehicle rates are up 75 basis points, while used rates are up 70 points.
Between the lines: While rate cuts may eventually ease pressures, Powell also expressed that “higher tariffs have begun to push up prices in some categories of goods."
For dealers, this creates additional cost pressures on parts and inventory alongside higher financing rates.
The good news: Even as financing costs register uneven across industries, small business confidence sits "above the 53-year average," Small Business Administration Administrator Kelly Loeffler told Fox News Live.
Looking ahead: (Most) of the Fed’s voting members forecast up to two more rate cuts in 2025, but project only a modest easing of about one full percentage point by 2027—far from substantial relief for consumers. Meaning, dealers should not expect significant changes to auto loan rates based on Fed policy alone.
A quick word from our partner
Winning in today’s market means more than just adjusting prices or boosting ad spend.
It’s about seeing what’s holding each vehicle back - and taking smarter action from day one.
Long before AI became a buzzword, Lotlinx built the industry's first VIN performance platform — powered by AI and the most robust dataset of VIN and shopper behavior — to help dealers optimize every vehicle and maximize profit.
With Lotlinx, dealers can:
Spot inventory risk before it hits
Move cars with precision
Turn each VIN Into a star
Visit lotlinx.com to discover how to win with every VIN and maximize profit - one VIN at a time.
