Kelley Blue Book: The auto market was already reeling; now higher interest rates mean only the wealthy can afford a new car

by | Nov 7, 2022 | Stock Market

The Fed is making new cars something only the wealthy can afford. On Nov. 2, the Federal Reserve raised interest rates for the fourth time in seven months. The move raises the rate banks charge each other for overnight loans, requiring them to raise interest rates on the loans and credit cards most consumers use to fund big purchases.

The Fed has moved the rate by a total increase of 375 basis points this year — a rate of change not seen since 1981. Further increases may be coming, but the Fed signaled that they would likely be smaller and further apart.

““With rates expected to go even higher and stay there for at least the duration of 2023, the auto market will become more dependent on cash-rich, higher-income, and higher credit-tier consumers.””

— Jonathan Smoke, chief economist, Cox Automotive

The Fed made the move to try to rein in inflation on the theory that limiting big-ticket purchases will slow the growth of prices in all sectors of the economy. But this isn’t a controlled experiment with no other inputs. The car market is reeling from two unusual years. Higher interest …

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