Publication date: 5 March 2017 | Covering: February 2017
Monthly Briefing
- Fed January 31–February 1: Holds 0.50–0.75%; statement little changed; March hike probability rises after testimony
- Yellen Senate/House testimony February 14–15: Signals March hike “live”; warns delay would be “unwise”
- Trump’s travel ban Executive Order January 27: Courts block; immigration policy chaos; political controversy
- Trump rally in equities continues; S&P 500 records highs; 10-year Treasury yield range 2.30–2.50%
- Eurozone: French election risk premium builds; Le Pen poll lead narrows; German Bundesbank hawkish
- BOJ easing; Jamaica IMF programme progress; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed Holds; Yellen Puts March Hike on the Table
The Federal Open Market Committee held the federal funds rate at 0.50 to 0.75 per cent at its meeting on 31 January to 1 February, as was universally expected. The January statement was minimally changed from December: the Committee reiterated that the economy was expanding at a “moderate pace”, that the labour market had continued to strengthen, and that near-term risks were “roughly balanced”. The statement provided no direct signal about the March meeting. The picture became clearer at Chair Yellen’s semiannual monetary policy testimony to the Senate Banking Committee on 14 February and the House Financial Services Committee on 15 February. Yellen stated that “waiting too long” to raise rates would be “unwise” and that every upcoming meeting was “live” for a rate increase, including March. The testimony was widely interpreted as a strong signal that the Fed intended to hike in March absent a meaningful deterioration in the economic outlook. Market pricing for a March increase jumped from below 30 per cent before the testimony to above 70 per cent afterwards. The three-hike trajectory for 2017 that the December dot plot had indicated now appeared to be on track, with the first instalment due in approximately two weeks.
Trump’s Travel Ban and Immigration Policy Disruption
President Trump’s Executive Order of 27 January, issued just one week into his presidency, suspended entry to the United States from seven predominantly Muslim countries — Iran, Iraq, Libya, Somalia, Sudan, Syria, and Yemen — for 90 days and halted the US refugee admissions programme for 120 days. The order was implemented without the normal interagency consultation process, leading to scenes of confusion at airports globally as travellers and visa-holders were detained or turned away. Federal courts moved quickly to issue restraining orders blocking enforcement of the travel ban, and the Ninth Circuit Court of Appeals subsequently upheld one such restraint. The administration was preparing a revised executive order, expected to address the legal vulnerabilities identified by the courts. For the Caribbean and Jamaica specifically, the episode underscored the degree to which immigration policy under the new administration was entering a period of significant flux, with potential implications for diaspora remittance flows, business travel, and the treatment of Caribbean nationals resident in the United States.
Markets Rally; Optimism on Tax Reform
The “Trump rally” in US equity markets continued through February, with the S&P 500 reaching a series of new record highs on the sustained optimism that the administration would deliver significant corporate tax cuts and infrastructure spending. The Dow Jones Industrial Average crossed 20,000 for the first time in late January and extended its gains through February, reaching 21,000 briefly. The 10-year US Treasury yield fluctuated in a 2.30 to 2.50 per cent range, reflecting market confidence in the growth and reflation thesis without triggering the degree of yield spike that might undermine the equity rally. For Jamaica, where government debt servicing costs and external financing conditions are sensitive to US interest rate movements, the relatively contained range of long-term yields through February was welcome. However, any significant acceleration in the pace of Fed hikes — potentially triggered by fiscal stimulus-driven inflation — remained a risk to monitor.
Jamaica Mortgage Market in February
Jamaica’s mortgage market showed continued gradual improvement through February 2017. The Bank of Jamaica’s monetary easing cycle was feeding through the domestic financial system, with commercial bank lending rates coming off their recent peaks. NHT loan applications and disbursements were progressing at a healthy pace, with the Trust’s J$6.5 million individual ceiling and tiered rates of 0, 2, and 4 per cent continuing to provide the accessible mortgage architecture for qualifying contributors. The property market in the Kingston metropolitan area, Montego Bay, and coastal resort communities was seeing steady if not spectacular transaction volumes. The broader macroeconomic stabilisation under the IMF Extended Fund Facility programme — supported by improving fiscal metrics, declining inflation, and a more stable exchange rate — provided the foundation for growing lender confidence in the residential property market.
Looking Ahead
The Fed’s March 14 to 15 meeting is now the near-certain venue for the next rate increase, with market pricing above 70 per cent and Yellen’s own testimony having all but confirmed the intention to act. The French presidential campaign is entering its critical final weeks ahead of the first round on 23 April, with the outcome holding significant implications for European and global market stability. The Dutch election on 15 March will be the first European test of populist sentiment in 2017. In Jamaica, the approaching financial year-end in March and the budget preparation cycle for 2017/18 will focus attention on fiscal performance under the IMF programme. The NHT’s contribution cycle and new scheme openings are expected to continue providing the primary affordable housing finance activity through the quarter.
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 ↗