For the first time since November, the Federal Reserve Board today (June 25) lowered interest rates 0.25%, which means lending institutions are expected to lower their benchmark prime interest rates to 4%, the lowest level since 1958.
Lowering the prime should help RV dealers because many of them have inventory finance programs in which the interest rate they pay is pegged to the prime.
However, there are some economists and officials at banks and finance companies involved with the RV industry who are worried that interest rates are getting so low that deflation could occur.
Deflation is a period when almost all prices decline, which sounds good except that it could prompt consumers to delay purchases on the assumption that prices will eventually fall even lower.
In a statement issued this afternoon, The Fed admitted there is a “minor” chance that deflation could occur. Otherwise, the Fed, led by Chairman Alan Greenspan, believes its low interest rate policy is “coupled with still robust underlying growth in productivity, providing important ongoing support to economic activity.”
However, the Fed also believes the economy is not yet showing signs of a sustainable rebound, so it decided to cut rates to stimulate growth.
In a rare showing of dissent, Fed member Robert Parry voted against the 0.25% rate cut. Parry wanted a 0.50%, rate cut.