Publication date: 5 July 2017 | Covering: June 2017
Monthly Briefing
- FRESH: Fed June 13–14 raised federal funds rate to 1.00–1.25% (21 days ago); also announced balance sheet normalisation plan framework
- Trump announces US withdrawal from Paris Climate Accord June 1; diplomatic rupture with European allies
- UK general election June 8: May loses Conservative majority; minority government with DUP; pound falls
- Qatar diplomatic crisis June 5: Saudi Arabia, UAE, Bahrain, Egypt sever ties; most severe Gulf rift in decades
- Global growth momentum strengthens; eurozone accelerating; ECB debates tapering timeline
- BOJ easing; Jamaica inflation contained; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed Raises Rates Again — Third Hike of the Cycle
The Federal Open Market Committee raised the federal funds rate by 25 basis points to 1.00 to 1.25 per cent at its meeting on 13 to 14 June, delivering the third rate increase since the historic liftoff of December 2015. The decision was widely anticipated by markets and proceeded with minimal financial market disruption. More significant in some respects was the accompanying release of a detailed framework document outlining how the FOMC intends to implement its balance sheet normalisation programme. The plan involves gradually tapering reinvestments of maturing Treasury and agency mortgage-backed securities, initially by allowing up to US$10 billion per month to run off (US$6 billion Treasuries, US$4 billion agency MBS), with caps rising every three months until they reach US$50 billion per month. The FOMC indicated the programme could be started “this year”, consistent with a September announcement. Chair Yellen, at the post-meeting press conference, described the current level of policy as still “accommodative” and pointed to continued gradual tightening as the appropriate path. She acknowledged some puzzlement over why inflation had remained below the 2 per cent target despite a labour market near full employment, noting that the Committee believed the softness was likely “transitory”.
US Withdraws from Paris Accord; UK Election Shock
President Trump’s announcement on 1 June that the United States would withdraw from the Paris Climate Agreement was one of the most consequential diplomatic decisions of his presidency to date. The move provoked immediate condemnation from European leaders, with French President Macron declaring “Make Our Planet Great Again” in a pointed rejoinder, and several US state governors announcing they would pursue the accord’s goals regardless of the federal position. For small island developing states and low-lying nations — including Jamaica and its Caribbean neighbours, who are among the most climate-vulnerable countries on earth — the US withdrawal from what was regarded as an essential framework for limiting global warming was a source of deep concern. The practical impact on US greenhouse gas emissions policy in the near term remained to be seen, as the formal withdrawal process under the accord could take four years to complete.
Britain’s general election on 8 June produced a shock result. Prime Minister Theresa May, who had called the snap election expecting to strengthen the Conservative majority ahead of Brexit negotiations, instead lost her parliamentary majority outright. The Conservatives remained the largest party but fell short of a majority, forcing May into negotiations to form a minority government supported by the Northern Irish Democratic Unionist Party. The pound fell sharply on the news, and questions about May’s political authority and the UK’s Brexit negotiating position multiplied. Brexit talks with Brussels were scheduled to begin on 19 June, now complicated by the political uncertainty in London. For Caribbean Commonwealth members with historical and contemporary ties to the UK, the prospect of an extended period of British political flux and the ongoing uncertainty over post-Brexit trade relationships added to an already complex external environment.
Qatar Crisis and Gulf Region Uncertainty
The severing of diplomatic relations with Qatar by Saudi Arabia, the United Arab Emirates, Bahrain, and Egypt on 5 June was the most serious rupture within the Gulf Cooperation Council in the bloc’s history. The quartet accused Qatar of supporting terrorism and maintaining close relations with Iran, and imposed an air, land, and sea blockade. Qatar denied the accusations. The crisis had implications for regional stability and, given Qatar’s role as the world’s largest exporter of liquefied natural gas, for global energy markets. Oil prices were relatively unmoved initially, but the diplomatic and potentially economic fallout from the prolonged dispute was a factor to watch. For Jamaica and the Caribbean, the main transmission channel was through global oil prices and any broader Middle East risk premium, rather than direct trade links.
Jamaica Mortgage Market in June
Jamaica’s mortgage market showed continued stability through June 2017. The third US rate hike of the current cycle had been expected, and the accompanying balance sheet normalisation plan was designed to be gradual enough to avoid disruptive upward pressure on global long-term rates. For Jamaica, where external financing conditions and the J$/US$ rate are significant variables, the Fed’s measured approach was reassuring. The NHT remained the dominant force in affordable housing finance, with the J$6.5 million individual ceiling and tiered mortgage rates of 0, 2, and 4 per cent providing structured access to home ownership for qualified contributors. Commercial lenders were competing cautiously in the higher-value segment of the market. The Bank of Jamaica’s accommodative stance meant domestic lending rate pressure was easing gradually, supporting a modestly improving environment for mortgage origination.
Looking Ahead
The Fed’s July 25 to 26 meeting is expected to be a “pass” with no rate change, as the balance sheet normalisation plan takes precedence over further near-term tightening. The ECB’s June meeting signalled a subtle upgrade to its growth assessment, and a tapering debate is building — a September ECB announcement on the QE pace is possible, which could lift the euro and affect global capital flows. For Jamaica, the summer period brings peak hurricane season risk and the continuation of the busy diaspora property investment season. NHT scheme closings and new applications are expected at seasonal norms. The global growth environment remains broadly supportive of Jamaica’s export and remittance revenues, which in turn underpin mortgage market fundamentals.
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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