Personally speaking, economist Ian Wyatt believes that the Federal Reserve has more room to cut interest rates, but he also understands why, after three cuts since September, the central bank decided Wednesday to pause.
“Consumer spending over the holidays was solid,” Wyatt, chief economist at recreational marine lender Huntington National Bank, told Trade Only Today. “Most economic data is looking decent. The main concern in the economy is the anemic pace of job growth and limited turnover, which are both hurting new entrants into the labor market.
“The Fed is concerned that inflation remains above its 2% target and is looking to see more progress toward that target before the next cut, and recent solid economic data gives the Fed room to wait and see before the next cut,” Wyatt added.
Fed chairman Jerome Powell made both of those points himself at his press conference after the central bank’s two-day meeting. Powell said the Fed still feels “tension” between its twin obligations to maximize employment and stabilize the prices consumers pay for goods and services, but less than it previously did.
“We’ve done a lot of the process of normalizing,” Powell said, adding that the Fed is now “well-positioned after those three cuts to let the data speak to us,” and point the way toward further policy moves at subsequent Fed meetings.
The Federal Open Market Committee — the Fed’s policymaking panel — voted 10-2 to leave the benchmark federal funds rate in a range of 3.5% to 3.75%. Fed governors Christopher Waller and Stephen Miran — President Donald Trump’s recent appointee — dissented in favor of a quarter-point cut.
Powell said, as he had after the committee meeting in mid-December, that the fed funds rate now sits “within a range of plausible estimates of neutral,” a place where Fed policy is neither stimulating nor restricting the economy.
But does the current policy give the boating industry the best economic conditions the Fed can provide right now?
“For companies, borrowing conditions are friendly,” Wyatt said. “With [the secured overnight financing rate] already down to 3.625% and spreads low, the cost of floorplan financing has come down and is relatively low by historical standards.
“The challenge is that the Fed’s cuts to its overnight rate haven’t caused a similar large downward move in the long-term fixed rates that matter most to consumers,” Wyatt added. “Mortgage, boat and auto loan rates remain relatively high by historical standards, which presents a real affordability challenge for consumers who need to borrow to fund boat purchases.”
“These elevated consumer rates reflect the fact that there has been a much smaller move in 10-year and 30-year Treasuries, and spreads on consumer loans remain high by historical standards. It really is a tale of two borrowing markets, with a wide split between commercial and consumer lending. However, the S&P 500 is near all-time highs, and the average household has a very low level of leverage. There are a lot of wealthy, older households with the ability to buy boats with cash.”
Shawn DuBravac, chief economist at the National Marine Manufacturers Association, agreed with that assessment, in comments to Trade Only Today.
“Borrowing costs remain a headwind for the recreational boating industry,” DuBravac said. “While the Fed’s decision is unlikely to ease that pressure in the short run, continued progress on inflation should put downward pressure on longer-term rates, which would provide some relief over time.”
Wyatt doubts that the Fed will cut its benchmark rate again before Powell’s term as Fed chairman ends May 15. He will preside over two more meetings, March 17-18 and April 28-29.
“A key takeaway from this week’s meeting is that the latest data has made the Fed more confident in the health of the U.S. economy, which likely makes the board more unified and pushes back the next cut,” Wyatt said.
“At this point, another cut before Powell’s term as chair ends looks unlikely,” he added. “There is a large amount of fiscal stimulus boosting the economy this quarter — tax refunds will be unusually large this year, which could present a good promotion opportunity for boat dealers; withholding tables are changing this quarter to reflect last year’s tax cuts, which will boost after-tax paychecks; and Social Security recipients will receive their annual cost-of-living adjustment (2.8%) this month. The stimulus could result in a boost in consumer spending and will make the Fed less likely to cut.”
DuBravac said financial markets currently price in two 25-basis-point Fed rate cuts in 2026, one around June and another around October. Both would come after Powell has left and President Trump’s pick for chairman is leading the central bank.
“If that path holds, the year will end with the federal funds rate near 3%, creating a modestly accommodative backdrop for interest rates,” DuBravac said. “Holding rates steady introduces some uncertainty into the economy, but it also avoids others.”
Referencing Wednesday’s pause, DuBravac said that “changes to the [Fed committee’s] statement point to a stronger economy, or at least a meaningfully improved Fed assessment of conditions. The committee upgraded its description of growth from ‘modest’ to ‘solid,’ while noting that inflation ‘remains somewhat elevated.’ ”
He said a key part of the Fed’s inflation view is that tariffs are playing an outsized role.
“Powell suggested that inflation, excluding tariff effects, is running around 2%, broadly consistent with the Fed’s long-run target,” DuBravac said. “In that context, the Fed appears reluctant to cut rates when the inflation overshoot may fade on its own.”
Powell told reporters his estimate is that “in the middle quarters of the year, we’ll see that tariff inflation topping out.”
Although the Fed sees improvement in the economy, the January Consumer Confidence Index from The Conference Board showed the measure declining by a sharp 9.7 points, to its lowest level since May 2014, amid continuing pessimism about economic conditions and the job market. The University of Michigan’s Consumer Sentiment Index saw a modest rise of 3.5 points, but that index remains well below its level a year earlier.
The Conference Board’s survey focuses on the labor market, while the University of Michigan homes in on personal finances and the cost of living. DuBravac agreed that the divergence between the results of the two surveys likely reflects differences in what each measures.
“Regardless of methodology, consumers remain cautious and conflicted,” he said. “Many households feel squeezed by prices and interest rates, even as employment remains strong, wages are rising and asset values have increased. That gap helps explain why the Fed sees a stabilizing labor market, while consumers continue to feel uneasy. Consumers feel anxious and uneasy, and that directly impacts the willingness to make large household purchases.”
There have been 13 boat shows in January, including The Discover Boating New York Boat Show, and the Discover Boating Minneapolis Boat Show, which took place last weekend amid what the NMMA said was “challenging external conditions that impacted attendance in both markets. Despite disruptions, exhibitors in both cities reported strong sales and engagement, reinforcing boat shows’ importance as key retail and marketing platforms.”
In New York, NMMA said, the weekend’s huge winter storm “affected travel across the region, leading to lower overall weekend attendance and forcing the show to close on Sunday. Even with the abbreviated schedule, several exhibitors reported solid interactions with customers, reflecting strong buyer intent among those able to attend.”
NMMA also provided comments from boatbuilders and dealers who were pleased with their show results.
“We had a record show, so we’re still happy walking out of there even with having to close on Sunday,” Chad Trimm, of Regal Boats, said of the New York show.
“Buyer sentiment at the New York show has been incredibly strong. We have already written a dozen deals, with more on the way. It’s clear that many families will be on the water enjoying summer boating,” echoed Ally Stacy, of Strong’s Marine.
“Winter boat shows have started off strong for Chaparral and Robalo Boats,” said Aaron Krenzer, with Chaparral and Robalo. “Attendance is on par with last year, and we’re seeing a noticeable uptick in first-time buyers entering the market. We’re excited by this momentum and look forward to carrying it through the remainder of the winter show season.”
