Updated on Dec. 18, 2024
The Federal Reserve announced another key interest rate cut on Dec. 18, 2024. The latest cut lowered the rate by another quarter point. Since September, the Fed has now lowered rates by a full percentage point.
Based on calculations that George Russell, a founding member of the Machinery Advisors Consortium, shared after the first cut in September, dealers can expect to see another $75,000 benefit on a floorplan debt of $30 million. With the 3 cuts in all, that would be a savings of $300,000 in annual interest.
At the same time, it signaled that it expects to reduce rates more slowly in 2025 than it previously thought, largely due to inflation remaining elevated. According to an AP report, the Fed's 19 policymakers project they will cut their benchmark rate by a quarter point just twice in 2025. Back in September they were estimating 4 rate cuts.
The AP reported:
Fed officials have underscored that they are slowing their rate reductions as their benchmark rate nears a level that policymakers refer to as “neutral” — the level that is thought to neither spur nor hinder the economy. Wednesday’s projections suggest that the policymakers think they may be close to that level. Their benchmark rate stands at 4.3% after Wednesday’s move, which followed a steep half-point reduction in September and a quarter-point cut last month.
Nov. 17, 2024
On Thursday, the Federal Reserve cut its key interest rate by a quarter point in response to the steady decline in inflation. This cut followed a half point reduction in September. The Fed’s benchmark rate is now about 4.6% — down from a decade high of 5.3% before the September meeting.
High inventories on dealers’ lots have come with high interest payments. Following the September cut, George Russell, a founding member of the Machinery Advisors Consortium, said that a typical $30 million floorpan debt would see a $150,000 benefit. This latest cut would add another $75,000 for a total of $225,000.
“The point is,” he said, “That is not much in a dealer with $30 million of floorplan debt.”
Ahead of this latest cut, Kyle McMahon, founder and CEO of Tractor Zoom, laid out the following annual interest rate savings on LInkedIn for equipment dealers at the previous 50 bps cut and the 200 bps cut that is expected in the next year.
Dealers with 10+ stores currently have $4.0M avg. inventory/location - save $20k at 50 bps and $81k at 200 bps.
Dealers with 1-9 stores currently have $2.8M avg. inventory/location - save $14k at 50 bps and $57k at 200 bps.
A dealership with 20 locations has $80 million of inventory and will save $1,620,000 in interest starting next fall, he said.
Speaking at a news conference, though, Fed Chair Jerome Powell said that “in the near term, the election will have no effects on our (interest rate) decisions.”
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