With auto loan rates already elevated, no substantial relief is expected following the Federal Reserve’s decision today (July 29) to keep its target rate between 3.5% and 3.75%.
The central bank has maintained the same level since January (and for four straight meetings) as inflation remains above the 2% goal at 3.5% amid continued economic uncertainty that is credited, in part, to the conflict in the Middle East.
Split vote: The Federal Open Market Committee (FOMC) voted 9-3 to keep the target rate stable.
Federal Reserve Chairman Kevin Warsh called the split vote a family fight to reach the “North Star” of a correct policy decision.
Additionally, he stated most of the discussions were on monetary policy.
The three dissenting members wanted to raise rates 25 basis points.
Not a pause: Warsh disagreed with the FOMC continuing to pause interest rate cuts.
“If you were to try to force a description that this was a pause, I would say financial market prices would take the other side of that,” Warsh said, pointing to the reaction from the monetary markets since the last meeting in June. “Financial market prices, in this intervening period, they didn't pause. They reacted to the inflation data in one direction, strong economic growth in the other direction, and nominal and real rates went up.”
Freddie Mac, for one, shows that 30-year mortgage interest rates have reached their highest level since August 2025 at 6.58%.
Notably, auto rates, according to Bankrate’s survey of the 10 largest banks and thrifts, are at 6.97% for a 60-month loan
Inflation remains: Warsh also noted that the committee's attention is on inflation, which, according to the Bureau of Labor Statistics, was at a 3.5% annual rate at the end of June.
That was down from hitting a 4.2% rate in May when gas prices peaked due to the conflict in the Middle East.
After dropping back to the $3.80s in June, fuel prices are back above $4, according to AAA.
Another key metric for the FOMC, the labor market, saw unemployment stay at 4.2% and 57,000 jobs added to the workforce.
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“We've been talking mostly about price stability because we're doing pretty well collectively as a country, as policymakers on the full employment side, but we're doing considerably less well on prices,” Warsh said. “That's why we described them as elevated, and that's what's taking most of our discussion.”
Bottom line: Without movement in interest rates significantly based on the Fed, the auto sales market is not expected to shift.
Sales were up in July, hitting a high mark for the year with a seasonally adjusted rate of 16.7 million, with vehicles in the mid-size and compact car categories, as well as subcompact SUVs/crossovers, seeing increases.
“Higher-income consumers continue to be the backbone of the new-vehicle market, but affordability remains the defining issue for a large portion of buyers,” said Erin Keating, Executive Analyst, Senior Director, Economics and Industry Insights.
“Right now, product mix, incentive availability, and having vehicles priced in the market's affordability sweet spot, roughly around the mid-$30,000 range, are likely to have a greater impact on sales than a single Fed decision.”
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