By Gary S. Vasilash

Adjusting interest rates can be a tricky business for the Federal Reserve.

On the one hand, it wants to reduce the amount of borrowing and—consequently—spending.

That helps reduce inflation.

On the other hand, it doesn’t want to reduce the amount such that the economy falls into a recession.

Consumers don’t like inflation. That’s because things cost more.

Consumers don’t like high interest rates. That’s because they have to spend more to borrow the money to buy things.

Things like cars.

Kelley Blue Book announced the average transaction price (ATP) for new vehicles was down 1% in March compared to the ATP in February.

What’s more (or less), the March ATP was down 5.4% compared with December 2022, when ATPs were at their peak.

It’s not like new vehicles are inexpensive, even with that 1% drop.

The ATP—and remember, this is average—for March is $47,218.

Erin Keating, executive analyst at Cox Automotive, said, “It bears repeating that historically high interest rates and associated inflation combined with an ever-widening deficit of available vehicles at lower price points, will continue to challenge affordability for most car buyers.”

So there’s the interest rate-inflation situation.

The Disappearing Econo Box

Keating’s observation about “widening deficit of available vehicles at lower price points” is key.

KBB found that in March there were some 275 new-vehicle models available in the U.S.

Of the 275 only eight had ATPs of less than $25,000.

Three percent. Imagine trying to find one.

But apparently either people have lots of money or they’re willing to borrow it: in March sales of vehicles with ATPs above $75,000 were greater than those under $25,000: approximately 81,000 of the former and 52,000 of the latter.

Perhaps high interest rates are having an effect—on the lower portion of the market.

Of course, chances are OEMs are putting out vehicles with higher sticker prices because they can make more money on them than those that are more economical.