CARY, N.C. -

While the Federal Reserve cutting interest rates twice in less than two months certainly has generated plenty of attention, automotive experts aren’t quite so sure the actions will directly lead to immediate upticks in vehicle deliveries and loan originations.

The chief economists at both KAR Auction Services and Cox Automotive shared their perspectives following the Federal Open Market Committee (FOMC) announcing on Wednesday afternoon that it decided to lower the target range for the federal funds rate to 1.75% to 2%. Policymakers lowered the rate by 25 basis points back in July, too.

“It was pretty much an expected move,” KAR Auction Services’ Tom Kontos told SubPrime Auto Finance News during a phone conversation. “Probably if the Fed had not done it, it would have been even more disruptive. The Fed moves have always been something people keep an eye on.

“To the extent that you would think (interest) rates would come down along with the Fed’s reductions, then that’s a potential boost to new- and used-vehicle sales,” Kontos continued. “Probably it’s helping with the issue of affordability on new cars.

“One of the things many of us have been commenting on has been the used-car market has been benefitting from the growing unaffordability of new vehicles,” he went on to say. “Maybe it puts more people who are on the border between new and used, it shifts them back toward new again. How much we see that in the data might be tough to prove. But it’s a factor that's probably going to help the new-car side of the business a little more.”

Cox Automotive’s Jonathan Smoke offered similar thoughts in a blog post. He pointed to what happened in the automotive sector after the Fed cut the rate for the first time in 11 years less than 60 days ago.

“Despite the fact that auto-loan rates did not decline in August, the retail market was strong for both new and used vehicles. The new market benefitted from a surge in incentives as dealers and manufacturers worked to reduce inventories. Lower prices helped average new-vehicle payments come down marginally despite high rates,” Smoke explained.

“The Fed’s prior action to cut rates and stop quantitative tightening didn’t help the auto market last month, but their actions didn’t hurt it either,” he continued. “Time will tell if this additional rate reduction will actually materialize into real, observed rates on auto loans. For now, we doubt rates will come down, and we think September retail sales will depend on high incentives.

“Consumers continue to deal with the most expensive new vehicles in history and record-high finance payments,” Smoke added. “If manufacturers hope to sell more of these expensive vehicles, they will need to keep incentives high. Lower bond rates could make rate subvention less expensive for manufacturers, so we may see more zero- or low-rate offers. However, we may not see many low-rate offers extended to borrowers with less-than-perfect credit.

“Keep an eye on used-vehicle values as well,” he went on to say. “Higher incentives and more discounting on new vehicles reduce demand for used cars and puts downward pressure on used-vehicle prices. If a new version of a model is now priced less, the market eventually cascades that discount down to its older siblings.”

Both KAR Auction Services and Cox Automotive will be represented during a panel discussion about interest rates, the economy and other trends during Used Car Week, which begins on Nov. 11 in Las Vegas. Early Bird Registration discounts are available through Oct. 1 and can be secured by going to this website.

By the time Used Car Week arrives, the last of the Fed’s chances to adjust interest rates will be about 30 days away. Policymakers also can make a move at the end of October, but they’re already not completely united on this latest action. Seven members voted for this week’s cut of 25 basis points while two members wanted to keep the rate unchanged. One member — James Bullard — sought a decrease of 50 basis points.

“Overall, as we say in our post-meeting statement, we continue to see sustained expansion of economic activity, strong labor market conditions, and inflation near our symmetric 2% objective as most likely,” Fed chair Jerome Powell said at the beginning of a news conference on Wednesday afternoon.

“While this has been our outlook for quite some time, our views about the path of interest rates that will best achieve these outcomes have changed significantly over the past year,” Powell continued.

“As I mentioned, weakness in global growth and trade policy uncertainty have weighed on the economy and pose ongoing risks,” he went on to say. “These factors, in conjunction with muted inflation pressures, have led us to shift our views about appropriate monetary policy over time toward a lower path for the federal funds rate, and this shift has supported the outlook. Of course, this is the role of monetary policy — to adjust interest rates to maintain a strong labor market and keep inflation near our 2% objective.”

And just like the analysts at KAR and Cox Automotive, FOMC members plan to keep a close watch on data to craft their next action.

“Well, what we do going forward is very much going to depend on the flow of data and information,” Powell said in a reply to a question later in Wednesday’s news conference. “We’ve seen, you know, if you look at the things we’re monitoring, particularly global growth and trade develops, global growth has continued to weaken. I think it’s weakened since our last meeting. Trade developments have been up and down and then up, I guess, or back up perhaps, over the course of this intervening period. In any case, they’ve been quite volatile. So, we do see those risks as actually more heightened now.

“We’re going to be watching that carefully. We’re also going to be watching the U.S. data quite carefully, and we’ll have to make an assessment as we go,” he added.