For decades, the Federal Reserve called the shots on interest rates. Raise the Fed Funds Rate, and borrowing got tighter. Lower it, and credit started flowing. Like flipping a switch.
But today? The switch is busted.
The FOMC (Federal Open Market Committee) is still setting the “official” rates — but the actual cost of borrowing in the real world is moving more and more based on market behavior, not Fed policy.
I’m not an economist, but I’ve spent enough time in dealerships and meetings with lenders to know when something doesn’t smell right. And right now, it’s clear: the Fed is losing its grip.
So what’s really happening?
The Fed sets a target range for the Fed Funds Rate. That rate used to set the tone across the credit markets — your mortgage, your car loan, even the interest on your dealership’s floorplan. But not anymore.
Longer-term interest rates — like the 10-year Treasury yield — are no longer playing ball. They’re moving based on global demand for U.S. debt, inflation expectations, government deficits, and even foreign central banks dumping bonds. The Fed can hike or pause or pivot, but the bond market has stopped saluting.
A dealership example: Floorplan rates gone wild
Let’s talk floorplan — because if you’re in the business of moving motorcycles, RVs, boats, or anything else with a VIN, this hits home.
Not that long ago, dealers were paying 3–4% on floorplan interest. Manageable. Predictable. You could work that cost into the margin and still come out ahead.
Fast forward to today — I’ve spoken with dealers this year whose floorplan rates have jumped to 9% or more, and not because they became riskier or missed payments. In many cases, they’re better operators now than they were two years ago. But the cost of capital is being driven by broader credit markets that are no longer syncing with the Fed.
Even worse? The Fed hasn’t even raised rates in months — but borrowing costs keep climbing. Why? Because lenders and banks are responding to market yields, not Jerome Powell.
You read that right: The Fed didn’t touch rates, but your interest bill went up anyway.
Why it matters — and what you can do
This shift isn’t just academic. It changes how we run our businesses.
- Forecasting costs becomes harder. Floorplan rates aren’t as tied to the Fed as they used to be. They’re being set in a chaotic bond market with a mind of its own.
- Consumer interest rates stay high, even if the Fed cuts later this year. That puts pressure on retail financing — and slows down showroom traffic.
- Capital investment becomes riskier. When the cost of money floats independently of central bank policy, it’s tough to make long-term bets.
Here’s what I’m telling operators:
- Watch the 10-year Treasury as closely as you watch the Fed rate. That’s where the real story is.
- Build flexibility into your business model. Lock in favorable rates when you can — and avoid adjustable-rate traps.
- Cash flow is king. In an environment where rates can shift overnight, liquidity gives you options.
We’re entering a new era — one where the Fed has influence, but not control. And if you’re running a dealership, a marina, or any business that depends on credit, you need to adjust your playbook.
The hard truth: This is a fiscal problem, not just a monetary one
Here’s the bottom line: The Fed is running out of tools because the real issue isn’t interest rates — it’s debt.
The U.S. is drowning in it. And the bond market knows it.
That’s why rates are staying high — not just because of inflation, but because investors are demanding higher yields to offset the growing risk of lending to a government that’s $35+ trillion in the hole and still spending like there’s no limit.
If we want long-term stability, it’s not going to come from another Fed pivot. It’s going to come from fiscal discipline — and that means electing leaders with the backbone to tell the truth:
✅ Yes, we’ll need to cut spending, including on things that are politically uncomfortable.
✅ Yes, we’ll need to raise taxes, even if that’s not what voters want to hear.
✅ And yes, this will be hard — but doing nothing will be far worse.
Kicking the can has worked for 40 years. But we’re out of road. The only way we fix this is by facing it — as citizens, as business owners, and as voters.
Because if we don’t demand better from the people we send to Washington, the markets will do it for us — and they won’t be gentle.
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