The Federal Reserve's more aggressive credit tightening plan announced last week could mean auto loan interest rates will begin to rise in the spring, Cox Automotive Chief Economist Jonathan Smoke wrote in a post.
"From a historical perspective, rates would still be low and attractive," Smoke wrote Dec. 15. "However, that would mean an end to the 2021 financing trend that helped mitigate some of the vehicle price inflation."
The Fed had kept rates steady and low and made monthly purchases of $80 billion in Treasury bonds and $40 billion in home loans to stimulate the economy during the COVID-19 pandemic. Starting in November, it began to buy $10 billion fewer bonds and $5 billion fewer mortgage bundles each month, which would have wound down the practice completely in June. The federal funds rate was to remain at 0 to 0.25 percent indefinitely until certain inflation and employment conditions existed.
But on Dec. 15, the Fed announced it would double the reduction in bond and mortgage purchases starting in January, which would end the practice by April 1. And according to Smoke, the Fed indicated it would raise the federal funds rate by 0.25 point on three occasions next year.