The 12-member Federal Open Market Committee (FOMC) lifted the federal funds rate another quarter percentage point to 2.25 percent Tuesday (Dec. 12) and indicated rates could rise further in coming months.
The anticipated increase marks the fifth quarter percent rate hike this year as the FED responds to signs of economic growth while taking steps to keep inflation “well contained.” Rates now stand at their highest level since October of 2001.
The benchmark prime rate, which is closely monitored by the RV industry, also increased by the same quarter percentage point to 5.25 percent.
Although current rates are generally considered pliable by the RV industry, the prime lending rate is regarded as the one economic factor that could have a profound effect on the buying habits of both consumers and dealerships.
During the 42nd Annual RV Trade Show, Nov. 30-Dec. 2 in Louisville, Ky., Tim Tiffin, general manager of Red Bay, Ala.-based Tiffin Motorhomes Inc. noted, “If interest rates go up significantly, that’s the one variable that could derail the industry more than anything.”
Michael Paey, owner of Holiday World Houston in Katy, Texas, stated, “We do feel interest rates are going to climb in 2005, perhaps to 6 1/4 or 6 1/2 percent. That will affect the high-end marketplace.”
According to CBS MarketWatch, the Fed’s statement was almost identical in language to the statement issued for the Nov. 10 rate increase.
The FOMC said the level of interest rates was accommodative, a signal that there are likely to be more rate hikes to come. The committee once again concluded that its accommodation could be removed at a pace that is likely to be measured.