Will Auto Loans Get Cheaper in 2024?
It's pretty fair to say that 2023 has been an expensive year to borrow money. And the reason has to do with inflation and the Federal Reserve's response to it.
The Fed's job is to control monetary policy and do what it can to support a healthy U.S. economy. In 2022, in light of surging inflation, the Fed had to take action by raising its federal funds rate, which is the rate banks charge each other for short-term borrowing. The Fed has raised interest rates 11 times since early 2022.
One big misconception about the Fed is that it's tasked with setting consumer interest rates -- rates for products like mortgages and personal loans. In reality, those rates are set by individual lenders, and the Fed doesn't control what they do. However, because an increase in the federal funds rate makes short-term borrowing more expensive for financial institutions, they tend to pass that cost onto consumers who seek to borrow money.
Meanwhile, auto loan rates have been up this year as part of a broad trend. But will auto loans get less expensive in 2024? There's reason to believe they just might.
The Fed may be done raising interest rates, and rate cuts may be in sight
The Fed's goal is to cool inflation and, ideally, bring it down to 2% on an annual basis. In November, annual inflation was measured at 3.1%, as per last month's Consumer Price Index. That's not quite where the Fed wants things to be, but it's also not so far off.
Meanwhile, at its last three meetings, the Fed opted to pause its interest rate hikes and leave its benchmark rate where it is. Many financial experts are convinced that the Fed is done raising interest rates for the time being.