In an attempt to tame inflation, the Federal Reserve stated that they will likely hike interest rates beginning in March. This move should help with the new car shortage. Why? Because the majority of American consumers purchase automobiles based on monthly payment. Those monthly payments will increase as interest rates increase, and some people will not be able to afford those payments.
New and used car prices will stabilize and most likely come down later in the year if interest rates continue to climb. The Federal Reserve policymakers indicated interest rates will increase three times this year. Having more new cars on dealer lots will take some demand off of the used car market, because many people have turned to buying used cars due to lack of new car inventory. A decline in new car sales will force franchise dealers to lower their prices, which will create a domino effect and used car prices will fall as a result. This won’t happen overnight. It will be a slow process throughout the year and possibly continue into next year.
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