Publication date: 5 July 2018 | Covering: June 2018
Monthly Briefing
- Fed June 12–13: Raises to 1.75–2.00%; upgrades 2018 projection to 4 hikes; confident economic assessment
- US steel and aluminum tariffs on EU, Canada, Mexico take effect June 1; allies retaliate
- G7 Charlevoix summit June 8–9: Acrimonious; Trump repudiates communiqué via Twitter after departure
- US-China: $50bn tariff list finalised; retaliatory exchange threatening; trade conflict broadening
- Italy coalition government causes temporary European market stress in May-June; euro pressure
- BOJ steady; Jamaica improving fiscal and external position; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Fed Raises Rates and Upgrades the Outlook
The Federal Open Market Committee raised the federal funds rate by 25 basis points at its June 12 to 13 meeting, lifting the target range to 1.75 to 2.00 per cent — the highest level since 2008. The hike was the second of 2018, following the March move, and was accompanied by a meaningful upgrade in the Committee’s economic projections. The updated Summary of Economic Projections showed the median FOMC member now expecting four rate increases in 2018, up from three projected at the March meeting, implying two further hikes over the remainder of the year. The 2019 median projection was maintained at three hikes, pointing to a potential terminal rate of around 3.25 to 3.50 per cent if the committee’s projections were realised. Chair Powell’s press conference was notably upbeat: he described the US economy as “great” in his opening remarks, pointing to strong employment, solid growth, and inflation near the 2 per cent target as justification for continued gradual normalisation.
The June upgrade to four hikes in 2018 was significant both for financial markets — which had been pricing three — and for the global interest rate environment. US Treasury yields had risen markedly since the start of the year, with the two-year yield reaching its highest level since 2008, and the dollar had strengthened materially against most currencies. For Jamaica and other Caribbean and developing economies, the tightening US rate environment and stronger dollar created headwinds for external financing costs and capital flows, even as the strong US growth provided a positive pull for tourism and remittances.
Trade Wars Broaden: Allies and China
June brought further escalation in US trade confrontations on two fronts. Steel and aluminum tariffs — of 25 per cent and 10 per cent respectively — that had initially been imposed in March took full effect against the European Union, Canada, and Mexico on 1 June, after exemptions for those trading partners expired. All three retaliated promptly: Canada with tariffs on US steel, aluminium, and a wide range of other goods; the EU with tariffs targeting US products chosen to maximise political pressure on Republican-leaning states; and Mexico with tariffs on US steel, pork, and agricultural goods. The simultaneous tariff imposition on three of the United States’ largest trading partners was unprecedented in the post-war trading order.
The G7 summit in Charlevoix, Canada on 8 to 9 June illustrated the diplomatic damage: the meeting was notably acrimonious, with President Trump leaving early and subsequently repudiating via Twitter the joint communiqué that had been agreed, criticising Canadian Prime Minister Trudeau as “weak and dishonest.” On the China front, the United States finalised a tariff list covering US$50 billion of Chinese goods at 25 per cent, with the first US$34 billion set to take effect in July. For Jamaica, the broadening of US trade conflicts from China to traditional allies created a more fragmented and unpredictable global trading environment that added uncertainty to the growth outlook.
Jamaica’s Mortgage Market Through June
Jamaica’s residential mortgage market maintained solid operating conditions through June 2018. The Bank of Jamaica’s monetary policy stance provided the domestic stability that supported mortgage lending and borrowing decisions, and the NHT’s J$6.5 million individual ceiling with subsidised rates of 0, 2, and 4 per cent continued to underpin the affordable housing finance sector. The first half of 2018 had seen continued strong tourism performance, solid remittance inflows, and improving fiscal dynamics, all of which supported the Jamaican economic backdrop for the mortgage market. Housing demand, driven by urbanisation pressures, household formation, and diaspora investment, remained structurally robust.
Looking Ahead
The US-China tariff exchange of July 6 — when the US$34 billion first tranche takes effect — will mark the formal commencement of bilateral tariff warfare, with the escalation path thereafter depending on negotiating dynamics. The Federal Reserve’s August 1 meeting will be watched for confirmation of the September hike path and any commentary on the trade war’s economic impact. For Jamaica, the second half of 2018 begins with constructive domestic fundamentals and a more complex and volatile external environment than at the start of the year.
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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