Posted on 09/16/2024 12:32:58 PM PDT by voicereason
American consumers and homebuyers, business people and political leaders have been waiting for months for what the Federal Reserve is poised to announce this week: that it's cutting its key interest rate from a two-decade peak.
It's likely to be just the first in a series of rate cuts that should make borrowing more affordable now that the Fed has deemed high inflation to be all but defeated.
Continued at link...
(Excerpt) Read more at msn.com ...
The problem as I see it is that the elevated prices/costs have already dug a deep hole into the savings for many. People and businesses alike. A rate adjustment won't mean much for the majority, especially since they'll need to have the cash and/or credit available to be able to take advantage of the rate cuts. No cash or credit, and a rate adjustment won't mean much to the average person. At least not enough to get them to go out and spend.
Want to buy a home? Hopefully the increased costs we've all faced has eroded your savings and the down payment. Want to buy a car, despite the rising repossessions, and the fact that dealers still aren't budging on the sticker prices. Better check your credit report if you've fallen behind on payments over the past year. Then there's always the large increase in credit card in general. In other words, you need to have the credit, to be able to spend the credit.
Will this just be another scenario to prove that so-called free markets really need to be 'Free'?
Don’t do it. Leave the rates alone. If at all, raise them another half a point. It’s all credit buying. Gotta stop it.
Unicorns, pixie dust and soft landings.
History repeats? This is 1967 all over ? Raising rates to curb inflation, then lowered rates to spur economic activity.
The horse of inflation is out of the barn. Fed chair Martin 4 years later Price controls (1971)
Federal Reserve controlled Interest rates are a very blunt instrument in trying to centrally-plan the economy. Every Federal Governor since Marriner Eccles has explained this.
Far more immediate and consequential, for good or for ill, in trying to stimulate demand (oddly never restrain demand) or implement industrial or social policy, is government tax policy, fiscal policy, and public debt.
Politicians and Fed.gov love to ignore this fact.
The car dealership has very limited room as they’re under contract. They might be able to adjust fees and add-ons but that’s where they actually make money. Lowered purchase MSRP is up to the manufacturer. If the manufacturer changes the price it may impact their stock price which could start a cascading self destruction. The market is much more complicated than the average person realizes.
It's also the dealership that is holding the bag when it comes to covering the costs for their inventory. The high rates haven't been helping them, nor has the inflated prices. Lower interest rates won't help much in a short term given the rising inventory levels and there needs to be buyers. Moving vehicles through lower margins at least generates cash while reducing interest and tax liability.
There's lots of inventory out there and the situation for some manufacturers, like Stellantis, the question then becomes what does 'right-sized' look for their business.
The dealerships are under contract to carry the inventory costs of X number of cars. So, if they sell, say, twenty percent of their inventory, it will be replaced by twenty-percent worth of new inventory. The manufacturer can’t reduce the build rate because they’re under contract with the UAW. They pay the workers whether the workers are building product or not. (Generally. Contracts vary.)
All these contracts are based on the business picture before the government got in and royally screwed everyone with the lockdowns and rules, regulations and COVID payments that skewed the long-term survival picture of dealers and automakers. For example, the government gave amazing tax breaks if you bought a hundred-thousand-dollar car. The first year you could take $100,000 off your taxable profits, then $80,000, then something lower the third year. All the while you were only making payments on the truck or car. This idiocy moved forward demand, also massively increasing the cost of every vehicle sold. A total fubar to both build and demand side. Then the impact all this had on financing was even worse. The default rate means banks won’t finance a purchase now like they did. People don’t have twenty thousand dollars to put down on a car. Most cars lose that much in depreciation just driving off the lot.
Another election year gimmick that will tank what little interest rates have returned to savings.
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