Tom Webb, chief economist for Cox Automotive, recently commented on the U.S. Federal Reserve’s increase of its benchmark interest rate by a quarter of a percentage point on December 14, saying:
“The quarter point rise in the targeted federal funds rate will not, in and of itself, have a direct negative impact on new or used auto sales or wholesale values. For one, note that market-determined rates like the two-year and 10-year Treasury yields had already moved up significantly post-election. And remember, after the December 2015 Federal Reserve rate hike, market rates actually declined – with the benchmark 10-year Treasury yield falling to a record low 1.4% last summer.
"Although we do not anticipate a similar response in the year ahead (indeed, rates are expected to continue to rise), it is an industry truism that ‘the availability of credit is more important than the cost of credit.’ And a steepening yield curve generally helps financial institutions and promotes lending.
“There are, however, possible indirect negative impacts. Most notably, there is the possibility of an over-strengthening dollar and/or global financial market volatility. Additionally, although the impact on residential real estate is also likely to be modest, there could be a more pronounced impact on commercial real estate where there is always large amounts of debt that needs to be rolled over.”