National Automotive Finance Association executive director Jack Tracey nicely summarized developments coming from the Federal Reserve last week. After making multiple upticks in interest rates last year, the Federal Open Market Committee (FOMC) decided to maintain the target range for the federal funds rate at 2.25 percent to 2.50 percent.
And Fed chair Jerome Powell expects those rates to remain at the current level for the remainder of the year.
“When rates are rising, it puts pressure on auto-finance company margins, so the fact they won’t be rising is a good thing for the industry,” Tracey told SubPrime Auto Finance News during a phone conversation. “The industry can focus on booking good business and keeping rates to the consumer as low as they can.”
The FOMC voted unanimously to deliver this decision to the auto-finance industry as well as the rest of the economy’s participants. Powell explained the reasoning why.
Data arriving since September suggest that growth is slowing somewhat more than expected. Financial conditions tightened considerably over the fourth quarter. While conditions have eased since then, they remain less supportive of growth than during most of 2018,” Powell said in his opening statement of a press conference that can be viewed here.
“Growth has slowed in some foreign economies, notably in Europe and China. While the U.S. economy showed little evidence of slowdown through the end of 2018, the limited data we have so far this year have been somewhat more mixed,” he continued. “Unusually strong payroll job growth in January was followed by little growth at all in February. Smoothing through these variations, average monthly job growth appears to have stepped down from last year’s strong pace, but job gains remain well above the pace necessary to provide jobs for new labor force entrants. Many other labor market indicators continue to show strength.
“Weak retail sales data for December bounced back considerably in January but on balance seem to point to somewhat slower growth in consumer spending,” Powell went on to say. “Business fixed investment also appears to be growing at a slower pace than last year. Inflation has been muted, and some indicators of longer-term inflation expectations remain at the low end of their ranges in recent years. Along with these developments, unresolved policy issues such as Brexit and the ongoing trade negotiations pose some risks to the outlook.”
During the press conference, Powell responded to an inquiry as to why the Fed adjusted its strategy that originally had a likelihood of two rate hikes this year switching to the next upward move not arriving until 2020.
“As I mentioned, the data that we’re seeing are not currently sending a signal, which suggests moving in either direction for me, which is really why we're being patient. We feel our policy rate is in the range of neutral. The economy is growing at about trend. Inflation is close to target. Unemployment is under three percent. It’s a great time for us to be patient and watch and wait and see how things evolve,” Powell said.
Discussing interest rates, terms, originations and other important parts of running an auto finance company are all on the docket for when the NAF Association hosts the Non-Prime Auto Financing Conference beginning on June 5 in Plano, Texas.
“We’re very exciting to host the event. This is our 23rd year,” Tracey said. “We have extensive coverage of fraud in this year’s program, and we also have a complete track dedicated to compliance issues. The rest of the program is very good. It covers many aspects of non-prime auto financing.”
As Tracey referenced, the popular “Fraud Friday” is back for this year’s conference. A year ago, the NAF Association placed tremendous focus about how much fraud happens in auto financing. Efforts by the association included education and awareness of the various types of fraud and the tools available to finance companies to combat fraud.
This year, the NAF Association is taking it to the next level by zeroing in on the two largest areas of concern and opportunity as indicated by its members — dealer fraud and improving contract validations using technology.
More details about “Fraud Friday” and the rest of the Non-Prime Auto Financing Conference can be found at nafassociation.com.