Publication date: 5 September 2018 | Covering: August 2018
Monthly Briefing
- Jackson Hole August 23–25: Powell “Navigating by the Stars” speech; balanced; no preset course signalled
- Turkey lira collapses sharply in August; US sanctions and fiscal concerns; emerging market contagion fears
- Argentina peso crisis deepens; IMF programme expanded; broader EM stress
- US Q2 GDP revised to 4.2% annualised; strongest quarter in four years; fiscal stimulus effect visible
- US-China: $200bn tariff list published; escalation through autumn increasingly likely
- BOJ steady; Jamaica domestic conditions stable; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
Jackson Hole: A Measured Fed in an Uncertain World
The Federal Reserve’s annual Jackson Hole Economic Symposium on 23 to 25 August provided the main monetary policy signal of the month. Chair Jerome Powell’s keynote address, titled “Navigating by the Stars Under Cloudy Skies”, struck a carefully balanced tone. Powell acknowledged the uncertainties inherent in real-time monetary policymaking — particularly the difficulty of estimating the neutral rate and the output gap — while affirming that the FOMC’s “gradual” approach to normalisation remained appropriate given the strength of the US economy and the uncertainty about where precisely neutral lay. He did not commit the FOMC to any preset course, and the speech was not interpreted as a signal of either acceleration or deceleration in the tightening path. The September hike — widely expected — remained the consensus outcome for the next meeting.
The US economic data released through August supported the Fed’s confident assessment. The second estimate of second-quarter GDP, released on 29 August, revised the annualised growth rate to 4.2 per cent — the strongest quarterly performance since 2014, and a figure that reflected the combination of robust consumer spending, business fixed investment, and government expenditure supported by the December 2017 tax legislation. The US labour market remained near full employment, and headline and core PCE inflation were both running near the 2 per cent target, providing the FOMC with the “further evidence” it had sought before proceeding with the September move.
Turkey, Argentina, and Emerging Market Stress
August’s most dramatic market event was the sharp depreciation of the Turkish lira, which fell more than 40 per cent against the US dollar at its trough — driven by a combination of US sanctions following the detention of American pastor Andrew Brunson, underlying Turkish fiscal and current account vulnerabilities, and concerns about the independence of the central bank. The lira’s collapse triggered contagion across emerging market currencies, with the South African rand, Indian rupee, Indonesian rupiah, and Argentine peso all weakening sharply. The episode reinforced a theme that had characterised much of 2018: the combination of a rising US dollar, higher US interest rates, and country-specific vulnerabilities was creating significant stress across emerging and developing market economies.
Argentina’s crisis intensified through August, with the peso losing roughly half its value against the dollar over the year to that point and the government seeking an acceleration of its IMF programme support. The Argentine situation had echoes of past Latin American debt crises, though the IMF programme framework and Argentina’s access to international capital provided a different institutional context. For Jamaica, the emerging market stress of 2018 was a reminder that the macro-financial gains of recent years needed to be preserved and deepened through continued fiscal discipline and appropriate reserves management, lest Jamaica become vulnerable to the kind of external shock that had afflicted more exposed emerging economies.
Jamaica’s Mortgage Market Through August
Jamaica’s residential mortgage market maintained constructive conditions through August 2018. The Bank of Jamaica’s monetary policy stance provided stability, and the NHT’s J$6.5 million individual ceiling and 0 to 4 per cent subsidised rates continued to support home ownership among the contributor population. The summer months typically generated active property market interest from the Jamaican diaspora, with overseas-based Jamaicans frequently using summer visits to progress property purchases or investments, and 2018 was consistent with that seasonal pattern. Jamaica’s improved macroeconomic fundamentals — lower debt ratios, stronger fiscal accounts, and more stable exchange rate — compared favourably with the more stressed emerging market environments being experienced elsewhere.
Looking Ahead
The Federal Reserve’s September 25 to 26 meeting is the next major policy event, with a 25 basis point hike to 2.00 to 2.25 per cent universally expected and the removal of the “accommodative” language from the statement widely anticipated. The US-China trade conflict will likely produce further escalation through the autumn, with the fate of tariffs on US$200 billion of Chinese goods at the centre of the confrontation. For Jamaica, the directional trends are clear: a tightening US monetary environment, a stronger dollar, and a more volatile global risk backdrop require Jamaica to maintain its policy discipline while capitalising on the domestic strengths that have been built over the IMF programme years.
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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