Fed Cuts Interest Rate to Zero - Good News for Borrowers?

[JeffKeryk]

The Fed Rate may trickle down to car loans, but there isn't much room. It will take time. Credit cards are less likely to be affected. The best car loans are credit unions and factory money. The rate was lowered as an attempt to slow the market decline and prop up business borrowing in the short term. Looks like it will not have much effect.

 

[Mad_Hatter]

Originally Posted by john_pifer

Originally Posted by CKN

You are not going to have people borrow money in a declared pandemic regardless of the interest rates. Don't see how this was a great move-honestly.

Why do you say that? People still need to borrow money to buy cars and houses, just to name a couple of the biggest purchases people make.

Forget about retirees and the well heeled, how many working stiffs are gonna be so confident in their job while layoffs are occuring around them to go out and borrow tens of thousands of dollars? And fwiw, rates are already pretty darn low for people with even halfway decent credit at my CU. Keep an eye on the consumer confidence index..

 

[Mad_Hatter]

Originally Posted by JeffKeryk

Looks like it will not have much effect.

Of course it won't because we are a consuming and service economy, we don't mfg much. If people aren't going out to ballgames, flying restaurants, hotels and cruise ships, spring break and summer vacations to Yellowstone for the foreseeable future.. they aren't consuming...you can give a zero interest loan to the restaurant owner but if he's got no customers, what good is that loan? It's simply not realistic that one can think we can hit pause on the economy and have it not impact GDP.

 

[pitzel]

Originally Posted by CKN

You are not going to have people borrow money in a declared pandemic regardless of the interest rates. Don't see how this was a great move-honestly.

A scary number of loans reset their interest rates daily. So its not about new borrowers, its about existing borrowers.

 

[PimTac]

The cutting of Fed rates has a lot to do with banks more than we realize. A zero rate gives them a chance to reinflate their assets. Banks make money on the float. The float has been obliterated, ie the fixed income markets. If you check the share prices of the big banks today they really tanked earlier, some being close to 20% down. The emergency rate cut helped them immensely.

 

[PimTac]

For reference. Citi. down 19.3% Wells Fargo down 14.2% JP Morgan Chase down 14.9% Bank of America down 15.3%

 

[Mad_Hatter]

Originally Posted by PimTac

The cutting of Fed rates has a lot to do with banks more than we realize. A zero rate gives them a chance to reinflate their assets. Banks make money on the float. The float has been obliterated, ie the fixed income markets. If you check the share prices of the big banks today they really tanked earlier, some being close to 20% down. The emergency rate cut helped them immensely.

The rate cut was all about the banks but let's see what they do with that money. Are they gonna resort to risky loans right now? I honestly think if the Feds went negative I still don't think that's gonna change what's headed our way. It's a 100 car locomotive headed our way..

 

[PimTac]

Originally Posted by Mad_Hatter

Originally Posted by PimTac

The cutting of Fed rates has a lot to do with banks more than we realize. A zero rate gives them a chance to reinflate their assets. Banks make money on the float. The float has been obliterated, ie the fixed income markets. If you check the share prices of the big banks today they really tanked earlier, some being close to 20% down. The emergency rate cut helped them immensely.

The rate cut was all about the banks but let's see what they do with that money. Are they gonna resort to risky loans right now? I honestly think if the Feds went negative I still don't think that's gonna change what's headed our way. It's a 100 car locomotive headed our way..

I don't think many people are applying for loans right now.

 

[CT8]

I guess the money should end up in the stock market.

 

[atikovi]

Originally Posted by JeffKeryk

The rate was lowered as an attempt to slow the market decline and prop up business borrowing in the short term. Looks like it will not have much effect.

Screw that. It's going to drop the piddling interest paid on savings to next to nothing.

 

[Mad_Hatter]

Originally Posted by PimTac

Originally Posted by Mad_Hatter

Originally Posted by PimTac

The cutting of Fed rates has a lot to do with banks more than we realize. A zero rate gives them a chance to reinflate their assets. Banks make money on the float. The float has been obliterated, ie the fixed income markets. If you check the share prices of the big banks today they really tanked earlier, some being close to 20% down. The emergency rate cut helped them immensely.

The rate cut was all about the banks but let's see what they do with that money. Are they gonna resort to risky loans right now? I honestly think if the Feds went negative I still don't think that's gonna change what's headed our way. It's a 100 car locomotive headed our way..

I don't think many people are applying for loans right now.

I'm not. They're hoping the rate cut jump-starts that but I'm not holding my breath. We'll see.. Fwiw the 30yr fixed at my CU is 3.125 and new car is 3.49 on 60 month loans. Pretty darn low already.. What I'm fearful is the extra cash will prompt banks to increase their exposure on high(er) risk borrowers if good credit borrowers are staying home. Then 3, 6 or 12 months from now as people get laid off those loans will start defaulting - making things worse.. when they should have never been made to begin with. We're already at a record high number of vehicle loans in default.. that's not a good thing at anytime, especially so in a downturn.

 

[CKN]

Originally Posted by john_pifer

Originally Posted by CKN

You are not going to have people borrow money in a declared pandemic regardless of the interest rates. Don't see how this was a great move-honestly.

Why do you say that? People still need to borrow money to buy cars and houses, just to name a couple of the biggest purchases people make.

NO. In a time of uncertainty people don't buy vehicles or other capitol purchases-that's a fact. I can assume you never have been through a recession-or forgotten how they affect the economy and what industries. " Morgan Stanley expects the coronavirus outbreak to send U.S. sales down 9 percent this year, it said in an investor note last week. Before the outbreak, analysts had expected a modest decline of 1 percent to 2 percent in 2020. LMC Automotive cut its U.S. forecast by nearly 300,000 vehicles to 16.5 million, a 3 percent drop from 2019. "Whether you believe there is a public overreaction or that COVID-19 is actually a public health crisis … there is no denying the expected negative impact it will have on the economy and auto industry," Jeff Schuster, LMC's president of global vehicle forecasts, said in a statement. If the economy recovers rapidly from coronavirus concerns, TrueCar subsidiary ALG projects new-vehicle sales of 16.4 million in 2020, down 2.9 percent from its initial forecast and 3.8 percent from last year's total. A longer economic slowdown could result in vehicle sales of 14.5 million this year, ALG said, 14 percent below its initial 2020 predictions."

 

[fdcg27]

Originally Posted by CKN

Originally Posted by john_pifer

Originally Posted by CKN

You are not going to have people borrow money in a declared pandemic regardless of the interest rates. Don't see how this was a great move-honestly.

Why do you say that? People still need to borrow money to buy cars and houses, just to name a couple of the biggest purchases people make.

NO. In a time of uncertainty people don't buy vehicles or other capitol purchases-that's a fact. I can assume you never have been through a recession-or forgotten how they affect the economy and what industries. " Morgan Stanley expects the coronavirus outbreak to send U.S. sales down 9 percent this year, it said in an investor note last week. Before the outbreak, analysts had expected a modest decline of 1 percent to 2 percent in 2020. LMC Automotive cut its U.S. forecast by nearly 300,000 vehicles to 16.5 million, a 3 percent drop from 2019. "Whether you believe there is a public overreaction or that COVID-19 is actually a public health crisis … there is no denying the expected negative impact it will have on the economy and auto industry," Jeff Schuster, LMC's president of global vehicle forecasts, said in a statement. If the economy recovers rapidly from coronavirus concerns, TrueCar subsidiary ALG projects new-vehicle sales of 16.4 million in 2020, down 2.9 percent from its initial forecast and 3.8 percent from last year's total. A longer economic slowdown could result in vehicle sales of 14.5 million this year, ALG said, 14 percent below its initial 2020 predictions."

I'll be surprised if full year sales exceed ten million in this country in 2020. We are on the cusp of an economic contraction that will match what happened in 2008/2009. Cheap gas or no, few are seriously looking at new vehicles and many are wary of visiting any dealership.

 

[john_pifer]

Sales may drop, but plenty of people will still be buying homes and cars.