The Federal Reserve kept interest rates unchanged on Wednesday, which economic experts projected since policymakers haven’t made an adjustment following eight consecutive opportunities.

But experts are also emphasizing that new data is prompting the Fed to lower the rate from its current level of 5.25%-5.5%. Fed chair Jerome Powell acknowledged during a news conference on Wednesday afternoon that “the labor market has come into better balance and the unemployment rate remains low.”

Powell added inflation “has eased substantially from a peak of 7% to 2.5%.”

The labor market and inflation were two of the key components included in the July ADP National Employment Report produced by the ADP Research Institute in collaboration with the Stanford Digital Economy Lab.

ADP and Stanford Lab reported on Wednesday that private sector employment increased by 122,000 jobs in July and annual pay was up 4.8% year-over-year.

The report also noted year-over-year pay gains for job-stayers actually slowed to that 4.8% figure in July, the slowest pace of growth in three years. And analysts added job changers saw a big drop, too, with pay gains slowing to 7.2% from 7.7%.

“With wage growth abating, the labor market is playing along with the Federal Reserve’s effort to slow inflation,” ADP chief economist Nela Richardson said in a news release. “If inflation goes back up, it won’t be because of labor.”

So, if the labor market is relatively stable and inflation is under control, why didn’t the Fed make a move?

“We have stated that we do not expect it will be appropriate to reduce the target range for the federal funds rate until we have gained greater confidence that inflation is moving sustainably toward 2%,” Powell said on Wednesday afternoon. “The second-quarter’s inflation readings have added to our confidence, and more good data would further strengthen that confidence. We will continue to make our decisions meeting by meeting. We know that reducing policy restraint too soon or too much could result in a reversal of the progress we have seen on inflation. At the same time, reducing policy restraint too late or too little could unduly weaken economic activity and employment.

“In considering any adjustments to the target range for the federal funds rate, the committee will carefully assess incoming data, the evolving outlook, and the balance of risks,” he continued. “As the economy evolves, monetary policy will adjust in order to best promote our maximum employment and price stability goals.

“If the economy remains solid and inflation persists, we can maintain the current target range for the federal funds rate as long as appropriate. If the labor market were to weaken unexpectedly or inflation were to fall more quickly than anticipated, we are prepared to respond. Policy is well positioned to deal with the risks and uncertainties that we face in pursuing both sides of our dual mandate,” Powell went on to say.

Cox Automotive chief economist Jonathan Smoke said dealerships and finance companies now must continue to wait, even as rates on the contracts their booking continue to climb. In his blog reacting to the latest Fed activity, Smoke explained how much elevated rates have made debt servicing on credit cards more expensive for consumers, likely preventing them from committing to auto financing.

“According to the New York Fed’s quarterly report on household debt and credit, credit card balances have risen by $129 billion over the last four available quarters of data through Q1 2024. The most recent balance, if not paid in full, would require $20 billion a month just to cover the interest expense, which is almost double what servicing the interest on the balance would have required in Q1 2022,” Smoke said.

“While most consumers may be paying their balances in full, it is very likely that an increasing number are not able to pay off the balance and therefore servicing the debt, which in turn is crowding out capacity to spend on actual goods and services or paying other bills. Unlike the federal government, there is a limit to what consumers can borrow,” he continued.

“This is a key reason why consumer attitudes, credit performance, and spending are not improving despite relatively strong GDP growth and declining inflation. The consumer was in better shape a year ago, but with each passing month, capacity to spend has been reduced. And waiting only makes this worse,” Smoke went on to say.

What might Smoke do if he ran the Fed? The Cox expert made these assertions through the automotive prism.

“Keeping rates at this restrictive level too long is a risky strategy,” Smoke said. “The good news is that if credit card rates follow the Fed’s rate cuts as quickly as they followed their increases, that debt service will decline rapidly once the Fed starts cutting. That would be a tailwind for consumers.

“However, I am not encouraged by today’s decision to wait being the 17th straight unanimous decision by the Fed. There should be more debate, as the economics community is divided on this topic. In my opinion, we are risking the economy over a questionable target based on an imprecise and imperfect measure of inflation. My worry is that conditions will deteriorate more at an accelerating pace before the Fed finally decides to cut,” he continued.

“For consumers waiting on lower rates to buy a new vehicle, relief is not right around the corner. It is doubtful that auto rates will rapidly decline as soon as the Fed starts cutting. With auto loan performance shaky, auto loan rates are bound to be sticky on the way down. That means that the Fed waiting compounds the wait for consumers,” Smoke added.