Publication date: 5 July 2004 | Covering: April – June 2004
Quarterly Briefing
- Fed first hike: June 30 (FRESH 5 days) 25bp raise from 1.0% to 1.25%; first rate hike since May 2000; Greenspan signals “measured” pace; housing boom continues
- Iraq Abu Ghraib: April–May photos of prisoner abuse at Abu Ghraib prison; global condemnation; Rumsfeld testimony; reputational damage to US; insurgency intensifies
- Iraq sovereignty: June 28 transfer of sovereignty to interim Iraqi government; slightly ahead of June 30 target; CPA dissolved; Bremer departs
- Oil in US$40s: Prices rising from US$35 in January 2004 to above US$40 by June; China demand; Iraq supply uncertainty; OPEC limited spare capacity
- US payrolls strong: Jobs market improving; 248,000 payrolls added in May; unemployment falling to 5.6%; recovery broadening
- Spain Madrid bombing: March 11 train bombings kill 191; Aznar government loses election three days later; troops withdrawal from Iraq announced
- Ronald Reagan dies: June 5; 40th president; economic legacy of tax cuts and deregulation; Cold War triumph
- Jamaica: Economy stabilising post-2001-2003 difficulties; NHT active; commercial rates high; tourism recovering
Fed’s First Hike; Iraq Sovereignty; Abu Ghraib
The second quarter of 2004 concluded with the Federal Reserve’s first interest rate increase since May 2000, raising the federal funds rate by 25 basis points to 1.25% on 30 June. The move, long anticipated by markets, marked the beginning of the end of the post-dotcom bust, post-9/11 emergency accommodation that had brought rates to a 45-year low of 1% in June 2003. Greenspan signalled that the committee intended to proceed at a “measured” pace — a phrase that markets interpreted as meaning 25 basis points per meeting on a predictable schedule, which is broadly what transpired over the following two years. Despite the rate increase, the US housing market showed no signs of decelerating: the combination of still-low absolute mortgage rates, robust job growth, and strong demographic demand continued to drive house price appreciation at double-digit rates in most major markets. Iraq dominated international politics throughout the quarter. The April release of photographs of US military personnel abusing prisoners at Abu Ghraib prison triggered a worldwide storm of condemnation, damaged US credibility internationally, and complicated the war effort. Defence Secretary Rumsfeld testified before the Senate and apologised. On 28 June — two days ahead of the stated deadline — the Coalition Provisional Authority transferred sovereignty to an interim Iraqi government, dissolving the CPA and with Ambassador Bremer departing Iraq.
Madrid Bombing; Reagan; Oil Rising
The quarter was preceded by the 11 March Madrid train bombings — ten coordinated explosions on commuter trains that killed 191 people in the deadliest terrorist attack in Spanish history, attributed to Al-Qaeda-affiliated extremists. The Spanish general election held three days later produced an unexpected victory for the opposition Socialist Party, whose leader José Luis Rodríguez Zapatero had promised to withdraw Spanish troops from Iraq. The outcome was interpreted by some as demonstrating that terrorism could influence election outcomes — a deeply uncomfortable conclusion. Ronald Reagan, the 40th President of the United States, died on 5 June at the age of 93, after a decade-long battle with Alzheimer’s disease. Reagan’s presidency — with its emphasis on tax cuts, deregulation, a strong dollar, and Cold War confrontation — had shaped the economic and political landscape of the 1980s and beyond. Oil prices continued their rise, moving from approximately US$35 in early 2004 to above US$40 by June, driven by Chinese demand growth and supply uncertainty from Iraq.
Jamaica: Stabilisation; Mortgage Conditions
Jamaica’s economy in mid-2004 was gradually stabilising after the difficulties of the early 2000s — a period marked by high debt service costs, financial sector restructuring following the 1990s banking crisis, and sluggish growth. Tourism was recovering, with arrivals improving and the major resort areas attracting renewed hotel investment. The NHT continued its lending at subsidised rates of 0%, 2%, and 4% on loans up to J$6.5 million individually or J$13 million for two-applicant borrowings. The Bank of Jamaica maintained elevated domestic interest rates to support exchange rate stability and control inflation, keeping commercial mortgage rates significantly above NHT’s subsidised levels. The approaching hurricane season — which would prove historically destructive — was the primary near-term risk to Jamaica’s external position and construction sector.
Looking Ahead to Q3 2004
The Fed’s hiking cycle has begun at a measured pace. Iraq’s transfer of sovereignty opens a new chapter in the occupation but the insurgency shows no sign of abating. Oil above US$40 is a new structural reality rather than a temporary spike. For Jamaica, the summer months bring peak hurricane season exposure, and the island’s recovery from earlier financial difficulties remains incomplete.
Mortgage & Housing Finance Disclaimer: This publication is for general information only and does not constitute mortgage, financial, legal or investment advice. Mortgage products, lending criteria, interest rates and borrowing costs vary between lenders and may change without notice. Readers should obtain independent advice from a qualified mortgage adviser, financial adviser or legal professional before making financial or property decisions.
Follow Jamaica Homes on Youtube @jamaicahomes and Instagram @jamaica_homes and on Facebook @jamaicahomesnews Send us a message or email us at onlinefeedback@jamaica-homes.com or editor@jamaica-homes.com
Visit our YouTube Community ↗