Fed Leaves Short-Term Rate Unchanged

The Fed officially left short-term rate policy unchanged at the conclusion of their December meeting today, which was the last meeting in 2019. After three rate cuts this year, the Fed seems set on a steady course in 2020 barring a major change in the economy. The Fed’s official statement acknowledged that economic growth is increasing at a moderate rate with solid job gains, and as such the current policy stance is appropriate. This was the first unanimous rate policy vote since May. Furthermore, Fed officials seem to be aligned in expecting no change in rates coming in 2020.

The strong November employment report combined with headline inflation now coming in above 2% reinforces the view that additional cuts are not needed. That said, growth projections are weaker for the next year, so we also are not likely to see accelerating growth that would lead to tightening. As a result, rates are likely to be stable at least through the winter and into the spring.

The rate cuts in 2019 did not help the average car buyer. Rates have actually gone up dramatically—more than two full percentage points—for consumers with subprime credit. Most of the rate gains for borrowers with good credit preceded the last Fed meeting. The one factor that could lead to better rates would be more zero or low APR offers from captive finance companies. Those offers tend to be only for consumers with good credit. But with new vehicle supply down, manufacturers may be more conservative over the winter months with incentivized rates.