“If used car prices fall another 20%, the Fed will stop raising rates.”

“If used car prices fall another 20%, the Fed will stop raising rates.”
“If used car prices fall another 20%, the Fed will stop raising rates.”

[이데일리 유재희 기자] Analysts say that if used car prices fall by another 20%, the US Federal Reserve will stop raising interest rates.

According to CNBC, an American economic media on the 22nd (local time), Wall Street experts are paying attention to the trend of the Manheim Used Vehicle Value Index to get a signal that inflation is slowing.

The Mannheim Index is an index that shows the used car price trend in the United States. The Mannheim Auction House, a subsidiary of Cox Automotive, the largest automobile distribution chain in the United States, calculates and discloses the ‘Mannheim Used Car Price Index’ annually and monthly based on the assumption that the average used car price in 1995 was 100. The index is calculated using a database of more than 5 million used car transactions per year.

The Mannheim Index is being used as a representative indicator of inflation, showing the most dramatic change in the pandemic situation. The used car price index can act as a ‘canary in the coal mine’ for inflation, as car sales, especially used car sales, are linked to many parts of the economy, such as gasoline prices, consumer sentiment, supply chain problems, and interest rates.

In fact, at the end of last year, when the US used car market recorded the largest transaction volume ever, the Mannheim Index recorded 236.2, a new record high. This means that the price of used cars has increased by about 2.4 times compared to 1995. The sharp rise in used car prices after the coronavirus pandemic has had a significant impact on the inflation rate reaching its highest level in 40 years.

There is also a movement on Wall Street to look for signs of the Fed’s interest rate policy in the trend of the Mannheim Index.

Kevin Barry, chief investment officer at Summit Financial, said: “In the decade before the coronavirus, used car prices rose an average of 2% per year, which is consistent with overall inflation. evaluated. In 2020 and 2021, used car prices rose by 20% annually.

Fortunately, the used car price index has shown a downward trend this year. It fell from 210.8 last month to 205.9 this month, down nearly 13% compared to the beginning of the year.

“The used car price index is showing a downward trend,” said Kevin Barry. This is because the Mannheim index would need to decline more than 25% from its current level to return to its pre-pandemic trend (an average of 2% increase per year).

“I think the Fed will feel comfortable closing the rate hike even if it’s only down about 20% (an average of 5% per year),” he said. explained.

The article is in Korean

Tags: car prices fall Fed stop raising rates

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