Publication date: 5 November 2015 | Covering: October 2015
Monthly Briefing
- FRESH: Fed October 27–28 holds 0–0.25% (8 days ago); explicitly signals December as live meeting
- Fed September 16–17 surprise hold covered context: “global developments” cited; China/EM turmoil blamed
- Russia begins air campaign in Syria September 30; US/Russia tensions intensify; Middle East proxy war
- VW Dieselgate scandal: emissions cheating admitted September 18; CEO resigns; $18bn+ in US fines potential
- US debt ceiling suspended to March 2017: Speaker Boehner’s farewell deal with Obama October 30
- BOJ easing; Jamaica NHT J$6.5 million ceiling; rates 0, 2, 4 per cent; IMF EFF
Fed Holds Again; December Now Explicitly on the Table
The Federal Open Market Committee held the federal funds rate at 0 to 0.25 per cent at its October 27 to 28 meeting, for the eighth consecutive meeting since the rate hike debate had intensified in mid-2015. The October statement, however, contained a significant new signal: for the first time, the Committee stated that it would assess “whether it will be appropriate to raise the target range at its next meeting”, explicitly flagging the December 15 to 16 meeting as a live date for a rate increase. The language was a departure from the FOMC’s typical formulation and was read by markets as all but a commitment to raise rates in December, absent significant economic deterioration. The September meeting — which had produced a surprise hold despite widespread market expectation of a hike — had cited “global economic and financial developments” as the reason for patience. The committee had pointed specifically to China’s financial market turmoil of August and September and the associated tightening of financial conditions globally. By late October, those conditions had stabilised: China’s markets had recovered from their most acute stress, and the domestic US economic data — particularly the labour market — remained solid. Market pricing for a December hike rose from around 40 per cent before the October statement to above 55 per cent afterwards.
Russia Enters Syria; Geopolitical Escalation
Russia launched its direct military intervention in Syria on 30 September, when President Putin obtained parliamentary authorisation and Russian aircraft began bombing targets the Kremlin described as ISIS positions. Western governments and Syrian opposition groups alleged that many of the strikes targeted non-ISIS rebel groups fighting against President Assad’s government. The intervention represented Russia’s first significant military operation outside the former Soviet space since the 1980s and significantly complicated the already complex Syrian civil war. The US and Russia entered into talks on “deconfliction” of their respective air operations, which were running concurrently in Syrian airspace. The episode raised the temperature of US-Russia relations, which had already been badly strained by the Ukraine crisis, and added a new dimension of superpower rivalry to the Middle East’s multiple overlapping conflicts. For global energy markets, Russia’s increased engagement in the Middle East was a factor to watch given the region’s oil production significance, though the direct market impact was initially limited.
Volkswagen Scandal and US Debt Ceiling Resolution
The Volkswagen emissions scandal, which broke in September when the US Environmental Protection Agency revealed that VW had installed “defeat device” software in its diesel vehicles to cheat on emissions tests, continued to evolve through October. VW’s chief executive Martin Winterkorn resigned, and the company disclosed that approximately 11 million vehicles globally were fitted with the software. Potential fines from US authorities alone were estimated at more than US$18 billion under the Clean Air Act. The scandal had implications beyond VW: it raised questions about emissions testing methodology across the industry and triggered investigations into other manufacturers. On the US political front, a deal struck between departing Speaker John Boehner and the Obama administration suspended the US debt ceiling until March 2017 and set spending levels for fiscal years 2016 and 2017, avoiding both an immediate default risk and a potential government shutdown. The agreement was a rare bipartisan fiscal compromise in an otherwise deeply partisan congressional environment.
Jamaica Mortgage Market in October
Jamaica’s mortgage market continued its measured recovery through October 2015. The Bank of Jamaica’s easing monetary policy continued to gradually reduce domestic lending costs, and the IMF EFF programme’s macroeconomic framework maintained lender confidence. The NHT’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent continued to provide the accessible affordable housing finance structure for qualifying contributors. The October period typically sees seasonal property market enquiry ahead of the year-end cycle, and NHT loan application volumes were in line with seasonal expectations. The improving macroeconomic backdrop — with tourism performing strongly and remittances solid — supported the gradual expansion of the mortgage market.
Looking Ahead
December 15 to 16 is now the focal date for global monetary policy. The Fed’s October signal makes a December hike highly conditional only on the economic data remaining broadly supportive — which, given the labour market’s trajectory, appears likely. The Paris COP21 climate conference beginning 30 November will be the major international diplomatic event of the next month, with Jamaica as one of the countries most engaged in the negotiations. For Jamaica domestically, the IMF programme review and the fiscal year budget cycle are the primary near-term policy considerations. The mortgage market is expected to remain stable, with NHT year-end activity providing the principal volume driver.
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.
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