Publication date: 5 February 2019 | Covering: January 2019
Monthly Briefing
- Fed January 29–30 — six days ago: landmark pivot to “patient”; drops “further gradual increases”; signals policy pause
- US government shutdown ends January 25 — eleven days ago: 35-day record shutdown over; back pay to 800,000 workers
- US-China 90-day trade truce from G20 Buenos Aires holds; talks advance; March 1 deadline the key horizon
- Global markets stage sharp January rebound from December’s sell-off; risk appetite restored by Fed pivot
- Fed funds rate 2.25–2.50%; December 2018 hike now likely the cycle’s last; yield curve flat
- BOJ steady; Jamaica fiscal consolidation maintaining momentum; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
The Fed’s Landmark Pivot: Six Days That Changed the Rate Outlook
Six days before this edition reaches readers, the Federal Open Market Committee completed its January 29 to 30, 2019 meeting and issued a statement that represented the most significant shift in Federal Reserve policy communication since the beginning of the current tightening cycle. The FOMC held the federal funds rate unchanged at its current target range of 2.25 to 2.50 per cent — the range established by the fourth and final hike of 2018 at December’s meeting — and, crucially, deleted from its statement the phrase that had been its policy lodestar for years: “further gradual increases in the target range for the federal funds rate will be consistent with sustained expansion of economic activity.” In place of that forward guidance came a single, carefully chosen word: “patient.”
The significance of the word choice cannot be overstated. Through 2015 to 2018, the FOMC had raised rates nine times in a cycle premised on the normalisation of monetary policy from crisis-era settings. The December 2018 hike had been deeply controversial, occurring against a backdrop of collapsing equity markets, sharp deterioration in financial conditions, and very public criticism of the Fed from President Trump. The S&P 500 fell 9.2 per cent in December 2018 — its worst December performance since 1931 — and credit spreads widened as investors priced in the risk that the Fed was tightening into a slowdown. The January pivot was the FOMC’s acknowledgment that those conditions had changed the calculus. Chair Powell stated at the post-meeting press conference that the case for rate increases had “weakened somewhat”, that the FOMC was “listening carefully to the market”, and that it was prepared to be “flexible” in its approach to balance sheet normalisation as well as rates. For Jamaica and the broader community of developing and emerging economies, the Fed’s pivot from a hiking bias to genuine patience was the most favourable external monetary policy development in several years, substantially improving the external financing environment.
The Shutdown Ends and Trade Talks Progress
Eleven days before this edition, on 25 January 2019, the longest government shutdown in United States history came to an end after 35 days. The partial shutdown — which had begun on 22 December 2018 when Congress and the White House failed to agree on appropriations legislation that included funding for a southern border wall — had furloughed approximately 800,000 federal workers or required them to work without pay through the Christmas and New Year period. The human and economic costs were significant: federal workers missed mortgage payments and grocery bills, federal agencies from the Transportation Security Administration to food safety inspection were operating at reduced capacity, and economists estimated the shutdown was costing the US economy approximately US$1.2 billion per week. A three-week continuing resolution to fund the government through 15 February provided the opening for Congress to negotiate a longer-term appropriations solution.
On the trade front, the 90-day truce agreed at the G20 Buenos Aires summit on 1 December 2018 between Presidents Trump and Xi continued to hold through January. US and Chinese trade negotiators met in Washington in late January for the highest-level talks since the truce was announced, with both sides signalling that discussions on the core issues — intellectual property, forced technology transfer, state subsidies, market access for US financial and agricultural goods, and currency practices — were progressing. The March 1 deadline, after which the United States had threatened to raise tariffs on US$200 billion of Chinese goods from 10 to 25 per cent, remained the hard marker for whether talks would produce a substantive agreement or a new escalation. For Jamaica and the global economy, the combination of the Fed pivot and trade war de-escalation produced a markedly improved risk environment in January relative to the anxiety-driven markets of December 2018.
Jamaica’s Mortgage Market Enters 2019
Jamaica’s mortgage market began 2019 in a position of domestic stability underpinned by a considerably more favourable external environment than had existed just weeks earlier. The Bank of Jamaica’s monetary policy framework — anchored by the inflation-targeting mandate adopted in 2017 — continued to provide the predictability and credibility that mortgage lenders and borrowers needed for long-term financial commitments. The BOJ’s policy rate remained steady, with the inflation environment within the target range and the external sector in reasonable balance supported by resilient tourism receipts and diaspora remittances.
The National Housing Trust remained the cornerstone of affordable residential finance for working Jamaicans. With its J$6.5 million individual loan ceiling and subsidised rates of 0, 2, and 4 per cent depending on the applicant’s income band, the NHT provided the most accessible pathway to home ownership for the contributor population — the employed workforce making mandatory payroll contributions. The trust’s two-applicant ceiling of J$13 million and three-applicant ceiling of J$19.5 million extended affordable finance access to couples and family groups seeking to combine resources for property purchase. Against the backdrop of Jamaica’s sustained housing supply constraints and growing aspirational middle class, NHT demand remained structurally robust entering 2019. Commercial banks and building societies complemented NHT lending with mortgage products targeting borrowers whose property values or income profiles exceeded NHT parameters, maintaining healthy competition in the broader mortgage market.
Jamaica’s IMF programme, which had delivered years of fiscal consolidation and structural reform, continued to provide the institutional anchor for macro-financial stability. The improved primary surplus and declining debt-to-GDP trajectory had supported sovereign credit upgrades and reduced Jamaica’s cost of external borrowing, creating a more supportive environment for private sector investment and the housing development activity needed to address the island’s persistent supply-demand imbalance in residential property.
Looking Ahead
The March 1 US-China trade deadline is the dominant near-term external event, with the outcome — a deal framework, a deadline extension, or tariff re-escalation — likely to set the risk tone for global markets through the first quarter. The Federal Reserve’s next meeting, on 19 to 20 March, will provide the first post-pivot Summary of Economic Projections: the revised dot plot will show how dramatically the Committee has adjusted its 2019 rate forecasts from December’s projection of two hikes. For Jamaica, the combination of a pause in US monetary policy tightening, cautious trade war de-escalation, an improving domestic fiscal picture, and the NHT’s sustained affordable lending programme creates a constructive foundation for the mortgage market as 2019 begins. The island enters the year with stronger macro-financial fundamentals than at any point in the preceding decade, providing resilience for whatever the external environment may yet bring.
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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