The trucking industry is slated to see more relief from an extended freight recession after the Federal Reserve on Wednesday declared a reduction in the federal funds rate for the first time in over four years.
The cut to the federal funds rate will provide some relief through easier access to equipment such as truck leasing, but the policy change may not spur consumer demand in a meaningful way, especially immediately, according to some analysts.
The Fed agreed last week to lower the rate by half a percentage to a target of 4.75% to 5%. The move could help stressed balance sheets with improved cash flow, helping growth or making ends meet, said Craig Decker, managing director at the investment bank and services firm Brown Gibbons Lang & Co.
"From a capital perspective, it is definitely a benefit to truckers,” Decker said. “Not a huge one, but definitely meaningful.”
Volvo Trucks North America welcomed the cut, noting its benefit to customers, dealers and the OEM itself. Less expensive loans could aid fleets' ability to buy, lease or refinance equipment.
But relief still comes as carriers’ average monthly contract rates remain negative year over year.
“Our customers’ profitability is still low, freight rates are down, and spot rates have been relatively flat on a low level for approximately 18 months,” Magnus Koeck, Volvo Trucks North America’s VP of strategy, marketing and brand management, said in a statement. “It will take some time for our industry to recover from this downturn.”
The targeted rate reduction will help individual lending instutions set lower rates themselves, providing easier access to credit and friendlier refinancing terms. Investment firms expect last week's reduction to continue in upcoming meetings.
The long-awaited rate cut could mean that the economy overall is poised to avoid a major recession across the country, according to BNP Paribas. The banking and financial services firm noted the Federal Reserve’s “insistence on not falling behind the curve makes us more confident in our baseline call for a soft landing.”
Accordingly, BNP Paribas is forecasting the Fed could aggressively lower the central policy rate to 4.5% by the end of this year and 3.25% by the end of 2025.
