By a unanimous vote, the Federal Reserve Board today (June 30) instituted a much-anticipated hike in the federal funds rate from 1% to 1.25%, the first increase in four years.
According to CBS MarketWatch, the rate increase was expected and likely will be followed immediately by banks and other lenders increasing their interest rates to customers, raising the costs of borrowing while gently braking the pace of economic growth.
The benchmark prime rate, which has been at 4% since June 27, 2003, increased by the same 0.25% shortly after the Fed’s announcement to 4.25%. Many market interest rates adjusted in advance of the Fed’s move, including home mortgage interest rates, which have risen by a full percentage point since the lows seen last summer.
The RV industry, fueled by several economic factors, has enjoyed a steady roll since the Fed began incrementally reducing interest rates four years ago. RV dealers were able to maintain higher inventory levels, while consumers benefited from lower interest rates on loans.
However, RV lenders interviewed recently by RV Business indicated that small increases would not have a dramatic effect on the industry, and would be outweighed by favorable demographics and increasing support for the lifestyle, particularly among Baby Boomers.
“Keep in mind that interest rates are not the only factor that influences (RV) sales,” said Eric Telljohann, president of the Bank of America Specialty Group. “Demographics are in the industry’s favor and the product and the lifestyle is one that appeals to a huge number of people. Those things will remain in place whether rates go up or down.”
To determine how quickly rates will rise, analysts will be culling through the Fed’s statement while keeping a close eye on other economic indicators.
Included in the Fed’s statement were several references indicating that “underlying inflation was relatively low.” The committee also retained the “measured pace” language in its statement used when it met in May, interpreted to mean that additional increases would follow.
However, the committee added that it would “respond to changes in economic prospects as needed to fulfill its obligation to maintain price stability.”
The next Fed Open Market Committee meeting is scheduled for Aug. 10.