Toyota Motor Corp. said the Federal Reserve’s decision to put interest rate hikes on hold will be supportive to the U.S. auto market, which has slowed down in large part due to higher borrowing costs.
The pause Fed Chairman Jerome Powell announced this month was the “right call” in the sense that it’ll help support car sales, Jim Lentz, CEO of Toyota Motor North America, said in a phone interview Thursday. He predicted the U.S. auto sales rate in March may be in line with February’s pace, which was the slowest in 18 months.
“We are seeing this year the impact of rising interest rates from last year,” Lentz said after hosting White House advisor Ivanka Trump for a visit to Toyota’s largest assembly plant in Georgetown, Ky. “We’ve seen this succession of interest rates in the past, and typically you don’t see an interest rate increase and an immediate affect the next 30 days. It takes time to work its way through.”
After boosting interest rates four times in 2018, Powell said last week that they could be on hold for “some time” as global risks weigh on the economic outlook and inflation remains muted.
While the auto market was buoyant last year, analysts expect sales to drop again in March after declining in the first two months of the year. Consumers are paying the highest interest rates to finance new-vehicle purchases in a decade, according to market researcher Edmunds.
Toyota began the year expecting U.S. auto sales to drop to between 16.6 million and 16.8 million in 2019, Lentz said. He estimated the annualized industry sales rate for March will be about 16.6 million, in line with February’s pace.
While Lentz, 63, said the Fed’s pause looks positive for the auto market, he cautioned he couldn’t speak to the broader implications of the central bank’s rate policy.
“We want to see the economy remain strong, but we don’t want to see it overheated to the degree that inflation starts taking over,” he said. “Only the Fed knows if that’s the right call, and time will tell.”
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