Publication date: 5 August 2019 | Covering: July 2019
Monthly Briefing
- Fed delivers first rate cut since December 2008: July 31 cut 25bps to 2.00–2.25%; Powell calls it mid-cycle adjustment
- G20 Osaka trade truce June 28–29: Trump and Xi agree pause on new tariffs; Huawei restrictions eased temporarily
- August 1 shock: Trump announces 10% tariffs on remaining US$300bn Chinese goods; truce effectively over
- US economy solid through July: GDP Q2 2.1%; unemployment 3.7%; consumer spending strong
- BOJ rate steady; Jamaica tourism and remittance inflows supportive; macro-financial stability maintained
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; residential market supported by strong fundamentals
A Historic Fed Cut — and an Immediate Trade War Shock
Five days before this edition goes to press, the Federal Reserve cut the federal funds rate by 25 basis points — the first reduction since December 2008 — bringing the target range to 2.00 to 2.25 per cent. The July 31 decision came after months of market speculation and a sustained dovish shift in FOMC communications. Chair Jerome Powell described the cut as a “mid-cycle adjustment” designed to guard against downside risks from slowing global growth and trade policy uncertainty, echoing the language of mid-cycle insurance cuts rather than a sustained easing cycle. The FOMC statement pointed to “muted inflation pressures” and “cross-currents” from global developments, while noting that the US labour market remained strong.
The optimism surrounding the long-awaited cut was, however, almost immediately undermined. On 1 August — just four days ago — President Trump announced via social media that the United States would impose 10 per cent tariffs on approximately US$300 billion of Chinese imports not yet subject to duties, effective 1 September. The announcement blindsided negotiators, markets, and the FOMC, which had been operating on the assumption that trade talks were making progress. US equity markets fell sharply in the days since the announcement, and Treasury yields tumbled as investors priced in a deeper Fed easing cycle. For Jamaica’s mortgage market, the interplay of a rate-cutting Fed and an escalating trade war creates a complex external environment: easing financial conditions on one hand, heightened global uncertainty on the other.
G20 Osaka and the Short-Lived Trade Truce
July opened on a note of cautious optimism. At the G20 Leaders’ Summit in Osaka on 28 to 29 June, Presidents Trump and Xi agreed to a resumption of trade negotiations and a pause on additional tariff escalation. The United States agreed to allow US companies to sell components to Huawei — which had been placed on a US export blacklist in May — on a case-by-case basis, a significant concession that the Chinese side had sought. Markets rallied on the Osaka announcement, and the trade war, which had dominated global financial market sentiment for much of 2018 and early 2019, appeared to have entered a genuine de-escalation phase.
That optimism prevailed through most of July. The US economy posted second-quarter GDP growth of 2.1 per cent, slightly above expectations, with consumer spending the dominant driver as household balance sheets benefited from the strong labour market. US equities reached new highs in mid-July, and the Fed’s impending cut was well-anticipated, producing measured rather than disruptive market moves. The August 1 tariff announcement has effectively terminated the Osaka truce, raising the question of whether any negotiated settlement is achievable given the structural depth of the US-China disagreement. The September 1 implementation date of the new tariffs is the next critical marker.
Jamaica’s Mortgage Market Through July
Jamaica’s residential mortgage market operated in constructive conditions through July 2019. The Bank of Jamaica’s monetary policy stance remained consistent, and domestic credit conditions were supportive of continued housing market activity. The NHT’s financing programme — with the J$6.5 million individual ceiling and rates spanning 0 to 4 per cent for eligible contributors — continued to provide accessible mortgage finance for the broad population seeking to enter home ownership. Commercial banks and building societies competed actively for qualified borrowers, keeping mortgage pricing competitive against the backdrop of BOJ policy continuity.
Jamaica’s tourism sector recorded another strong performance through the summer months, providing positive support to the external account and employment. Remittance inflows from the Jamaican diaspora — concentrated in the United States — continued at healthy levels, providing additional household income support and purchasing power for residential property. The trade war escalation and renewed global uncertainty represent the principal external risks to this positive domestic picture, primarily through their potential effect on the US economy and therefore on Jamaican tourism demand and diaspora remittances.
Looking Ahead
The September 1 implementation of tariffs on US$300 billion of Chinese goods is the next concrete event in the US-China trade conflict, with markets already re-pricing the outlook for global growth and Fed policy. The Federal Reserve’s September 17 to 18 meeting will be critical: Chair Powell’s characterisation of the economic outlook and the trade war’s impact will determine whether the FOMC delivers a second consecutive cut or opts to pause. For Jamaica, the navigation of an external environment that has shifted from cautious optimism to acute uncertainty within days of this edition’s coverage period is a reminder of the volatility of the global landscape and the importance of maintaining the domestic policy discipline that has served the island well.
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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