With decreasing federal interest rates in the news, I’m hearing a common question right now: “Where are rates going?” And how will they affect aircraft loans?
I could quote various economists, or even recap what the Federal Reserve Board members are thinking. However, the reality is that no one knows for certain where things go from here. From a lending perspective, the best way to examine market conditions is through tangible actual and historical data over forecasts.
As you may be aware, the phrase “the Fed cut rates” does not mean that rates across the board (e.g., car loans, aircraft loans, or mortgages) will drop the same amount the Fed’s rate cut suggested. In fact, a Fed rate cut may not even mean that rates we see every day (airplane loans, for example) drop at all. To the contrary, they may even increase marginally.
Let’s dive deeper. In September, the Fed “cut rates” by 0.50%. However, the rate cut by the Fed was the “Federal Funds Rate,” which meant that not all rates dropped equally. For example, the 10-year Treasury Rate (which is a better indication of the general rate trend in the aircraft lending world) actually decreased 0.993% from its 2024 high before the Fed’s decision. Compare that to the days immediately after the Fed rate cut, the 10-year rate increased 0.085%. We’ve seen similar trends with our aircraft loan rate offerings.
What does all this mean? In essence, it supports the fact that, overall, rates have trended down, a trend that began before the Fed’s decision. It also means that the market may already have priced in the anticipated rate cuts through the end of the year, as seen by the pre-Fed cut drop in the 10-year Treasury. If financing an aircraft loan is on your radar, I think this is good to keep in mind as we push to year-end.
About the Author
Mike Smith is President of Scope Aircraft Finance and is based in Columbus, Ohio. Scope is a wholly-owned subsidiary of Park National Bank and an industry leader in providing finance solutions in the high-performance piston, turboprop, and light jet markets throughout the lower 48 States. Mike serves on the board of the Ohio Regional Business Aviation Association and is an active member of the National Aircraft Finance Association.