A new year traditionally represents new beginnings and a clean slate. From an aircraft finance perspective, this new year is starting off with quite a bit of carry over activity from 2024.
This carryover is due to several buyers deferring their purchases into 2025 in anticipation of a more favorable tax environment under the new Presidential Administration. Even so, we saw robust financing activity closing out 2024, despite interest rates starting to increase.
Rate Direction in 2025
In December, the Federal Reserve dropped their interest rate another 0.25%. However, as we saw through the back half of 2024, this did not result in a decrease in longer-term interest rates. Case in point: the 10-year treasury yield rose up 0.45% from December 6, 2024, to January 6, 2025.
The Fed’s cut was also considered a “hawkish cut.” Meaning, they plan to slow the pace of rate reductions in 2025 and rely more on economic data to make future cut decisions.
Only time will tell how many more cuts the Fed makes in 2025. But, as we’ve seen with longer-term interest rates, don’t expect much downward change in aircraft finance rates in the near future.
The good news is that this overall interest rate stability signals a fundamentally healthy economy. Thankfully, all signs point to a robust year in 2025. This bodes well for aircraft financing availability, and we’ll hopefully see more predictability in financing costs than in recent years.