On the Dash:
- Fed holds rates at 3.5% to 3.75%, scraps March forecast for a 2026 rate cut
- 9 of 18 Fed officials now expect a rate hike before year end
- Interest rates drop to dealers’ fourth-biggest concern, down from 43% to 32%
The Federal Reserve kept its benchmark interest rate unchanged on June 17, holding the federal funds rate at 3.50%-3.75%. The Federal Open Market Committee voted 12-0 at the first policy meeting led by new Fed Chairman Kevin Warsh.
The committee also scrapped its March forecast of a rate cut, which had initially been projected as a one-quarter-point reduction before the end of 2026. They now expect a quarter-point increase instead.
Nine out of 18 Fed officials anticipate at least one rate hike this year, while only one supports a cut. This change indicates a notable shift from the Fed’s earlier outlook.
Inflation is driving the new direction, as core inflation is projected to hit 3.3% by the end of 2026, up from a March forecast of 2.7%. Additionally, officials pointed to tariffs and rising energy costs tied to the war between Israel and Iran as key factors. The unemployment rate is expected to land near 4.3%, little changed from prior estimates.
The Federal Reserve’s benchmark rate does not set auto loan rates directly. But changes in the federal funds rate tend to move auto financing costs in the same direction over time.
Auto loan rates have eased some from their highs, with the average new vehicle loan carrying 6.9% interest in May, according to Edmunds. That’s down from 7.3% a year earlier. The average used vehicle loan rate fell to 10.4%, down from 11.5% over the same period.
Interest rates have dropped down the list of dealer concerns. Cox Automotive’s second quarter Dealer Sentiment Index found that 32% of dealers cited interest rates as a factor holding back their business. That’s down from 43% in the third quarter of 2025.
The Federal Reserve’s next meeting runs July 28-29. Investors will watch closely for signs of whether the central bank follows through on a rate hike this year. For now, dealers face a financing environment that looks similar to the past several months, with little relief in sight and a possible rate increase still on the table.
