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The Federal Reserve said today (March 19) that it is beginning to worry that inflation could accelerate, so it decided to leave interest rates unchanged.
Consequently, the prime rate will remain at 4.75%, its lowest level since 1972.
The Fed lowered interest rates on numerous occasions during 2001, first, to prevent a recession, and then, to keep the recession from becoming worse. Now, the Fed believes the economy is beginning to rebound, but it is uncertain whether the rebound will have much strength.
The Fed stated today that information gathered since its last meeting Jan. 29-30 shows that much of the economy’s growth the last several weeks was due to businesses, including RV dealers, investing to replenish their inventories. But now, the Fed is uncertain whether retail demand will be strong enough to sustain the recent level of investment in accumulating inventories.
Consequently, the Fed now believes the risk of the economy going back into recession approximately equals the chance that the rate of inflation will accelerate.
That is the first time in three years that the Fed has reached such a conclusion.
Lower interest rates helped RV dealers last year because their inventory loans are short-term borrowings that usually are pegged to the benchmark prime rate.
However, loans for retail purchases of RVs, typically, are of longer duration, and did not decline as much last year as dealer inventory financing. Consequently, the Fed’s actions last year did not do much to stimulate the retail sales of RVs.
Although a significant percentage of RV purchases, particularly at the high end of the price spectrum, are made for cash, RV dealers generally believe the interest rate environment impacts consumer confidence, which, thus, impacts retail sales of RVs. As a result, RV dealers generally believe that lower interest rates finally began to stimulate retail sales of RVs during the fourth quarter of last year, a trend that continued, at least, through January, according to industry data.