Smoke on Cars
Fed Meeting a Non-Event as We Await Election Outcome
Thursday November 5, 2020
Not much was expected from today’s Federal Reserve announcement given the yet settled outcome from the election. The key items of interest were about expectations for the economy, any new guidance on rates long term, and any new insights into their bond buying plans. Nothing new emerged from their official statement.
The most significant change, if you can call it that, in the official statement was “Economic activity and employment have continued to recover…” when the last statement said, “Economic activity and employment have picked up in recent months…” Not much of a change.
This meeting had a unanimous vote on the current policy, which was a change from some dissension at the last meeting.
It was notable that the formal statement did not acknowledge the recent increases in COVID-19 cases.
Treasury yields have been on a roller coaster this week in reaction to the election drama. After the release of the new Fed statement, yields were mostly unchanged, which echoes that this meeting, given its timing, was a non-event. Yields remain about a quarter-point higher than their summer lows despite the lack of movement today.
Consumer rates on mortgages and auto loans have not followed yields higher in October and November, or at least not yet. Average auto rates remain lower than they were in February.
Looking at auto loan originations, auto credit has loosened since August. We have seen broad improvement in approval rates, thinner spreads, and more relaxed terms since August for most types of loans. That means from a financing perspective, it is a better time to buy now than it was this summer.
In the end, the November Fed meeting will mostly go unnoticed. Far more important for the markets will be the outcome of the vote counting for both the White House and the Senate. In addition, tomorrow we will get the October employment report. Both may move consumer rates more than the Fed this week.
The Fed’s actions may become more important in future months, as they may be left all alone in supporting the economy if the election outcome is a split government and gridlock on stimulus actions. Without clarity, consumers may not be as willing to buy, even with slightly lower rates and better terms. The next Fed meeting is Dec. 15-16.