Key Highlights

The Federal government shutdown is now into week five, and routine reports and data have not been released, including updates on GDP, jobless claims, or personal income and spending. However, we did receive data on pending home sales and consumer confidence.  

  • The Federal Reserve met last week, cut interest rates and formally moved to end Quantitative Tightening (QT). 
  • Pending home sales were unchanged in September compared to August, and consumer confidence declined again in October. 
Pending Home Sales: Unchanged In September 

Pending home sales were unchanged in September, but the index for August was revised upward in the latest data. 

  • Pending sales varied by region with an increase of 3.1% in the Northeast and 1.1% in the South but declines of 3.4% in the Midwest and 0.2% in the West. 
  • Sales were lower by 0.9% year over year for the U.S. in total. Sales declined the most in the West (-5.3%) and Midwest (-1.5%), but increased in the South (+0.9%) and the Northeast (+0.5%). 
Consumer Confidence Declined in October 

The Conference Board Consumer Confidence Index decreased 1.0% in October when a small gain was expected, but September was revised up. 

  • Consumers’ views of the present and of the future moved in opposite directions, with present conditions improving but future expectations declining. 
  • Consumer confidence was down 13.7% year over year. 
  • Plans to purchase a vehicle in the next six months increased compared to September but were lower year over year 

Consumer sentiment as measured by Morning Consult decreased 3.4% in October, leaving the index down 3.7% year over year. 

The Federal Reserve Lowered Rate Policy Last Week 

The Fed lowered its rate policy by one quarter point as expected and moved to end QT on December 1, which should remove upward pressure on auto loans. 

  • Financial markets reacted negatively to the hawkish posture of the Fed since one member voted against the move to cut, preferring to leave rates unchanged. 
  • Fed Chair Powell remarked in the press conference that a December cut was far from a foregone conclusion. 
  • Bond yields including the 10-year US Treasury moved higher after the meeting in response. Higher bond yields typically lead to higher auto loan rates.  

Auto loan rates have moved higher in recent weeks, but the moves are not related to the Fed’s actions. 

  • New rates are moving higher because of fewer low-rate offers from the captive finance arms of the manufacturers. This results in higher rates for prime and above borrowers who disproportionately benefit from rate offers. 
  • The average new auto loan interest rate in late October was 9.6%, nearly 50 basis points higher than in August. 
  • In the used market, average rates have drifted higher mainly for subprime buyers as risk aversion has increased in the wake of a few high-profile bankruptcies in auto lending. 
  • These higher rates are not dissuading subprime borrowers, so the average rate for used loans has increased just over a quarter point from a low for the year in August. 
Bottom Line 

While buyers with excellent credit can find favorable loan terms, the average auto loan rate will likely remain high through November. Coupled with higher new-vehicle prices, Cox Automotive expects the market to cool some in the final months of the year. December may see more year-end rate offers in the new market, which should help bring the average rate down. 

The used market is not likely to see rates decline until loan performance improves. The end of the year is always when loan performance degrades. The first half of 2026 should bring improving conditions.