Browse Storyflo.Across every vertical.

Fed holds interest rates steady, but increase still expected in 2026

The Federal Reserve kept the benchmark interest rate steady at 3.5 to 3.75 percent, but experts still predict a rate increase by the end of 2026 to combat inflation. This could lead to higher borrowing costs for dealers and consumers. According to the CME Group's FedWatch tool, investors expect a 34 percent chance of a quarter-point rate hike this month and a 60 percent chance of a half-point increase by the end of 2026. The Fed's benchmark rate has a ripple effect on consumer auto loan interest rates, which have been relatively stable despite a series of Fed increases from 2022 to 2023. The average interest rate on new-vehicle loans was 7 percent in June, down 0.3 points from a year earlier, while the average used-vehicle interest rate was 10.5 percent, down 0.4 points. However, experts warn that sustained high rates will keep automakers from offering broad low financing options, pricing out middle- and lower-income buyers and shifting sales towards higher earners. Dealers are also facing the prospect of higher floorplan borrowing costs, which could lead to them buying fewer vehicles and different models. The impact of a rate increase is already being felt, with consumers taking on massive loan balances and stretching terms to keep monthly payments manageable. The average monthly payment on new vehicles is set to hit a record $784 in July, and a 0.25-point rate increase could have a structural impact on the market, making it harder for consumers to afford new cars.