Publication date: 5 October 2019 | Covering: September 2019
Monthly Briefing
- Fed September 17–18 cuts 25bps to 1.75–2.00%; second 2019 cut; divided committee; trade war cited
- US repo market stress September 16–17; overnight repo rates spike to 10%; Fed injects emergency liquidity
- US-China September 1 tariffs take effect; October trade talks scheduled; tensions remain high
- US economy resilient; labour market strong; manufacturing slowing; yield curve dynamics watched
- BOJ rate steady; Jamaica economic fundamentals solid; IMF programme advancing well
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; housing market demand solid
Federal Reserve September Cut and a Divided Committee
The Federal Open Market Committee cut the federal funds rate by 25 basis points at its September 17 to 18, 2019 meeting, bringing the target range to 1.75 to 2.00 per cent. The cut, the second of the 2019 mid-cycle adjustment, was not unanimous: three dissenting votes were recorded, with two members preferring to hold and one member preferring a 50 basis point cut. The division on the Committee reflected genuine disagreement about the appropriate policy response to the current mix of a resilient US labour market, slowing manufacturing activity, and trade policy uncertainty. Chair Powell described the cut as “appropriate insurance against ongoing risks” from trade developments and slowing global growth, while reiterating that the FOMC was “not on a preset course” and would remain data-dependent.
The September meeting occurred against the unusual backdrop of significant stress in the US overnight funding markets. In the days immediately before the meeting, overnight repurchase agreement (repo) rates spiked dramatically — hitting 10 per cent or more at one point on 17 September — reflecting a confluence of factors including quarterly corporate tax payments, a large Treasury auction settlement, and reduced bank reserve positions. The Federal Reserve Bank of New York conducted overnight and term repo operations of US$75 billion and more to inject liquidity and restore orderly conditions. The episode raised questions about the adequacy of reserve levels in the system and the structural dynamics of the funding markets in a post-crisis regulatory environment. For Jamaica, the episode was a reminder that even the world’s deepest and most liquid financial markets can experience sudden stress, underscoring the importance of Jamaica’s own financial system resilience and liquidity management.
US-China Trade War: September Escalation
Additional tariffs on approximately US$125 billion in Chinese goods took effect on 1 September 2019, as a previously scheduled escalation proceeded despite ongoing negotiations. China implemented retaliatory measures of its own, raising tariffs on US goods, and suspended US agricultural purchases. The September 1 tariff escalation brought the total value of Chinese goods subject to US tariffs to approximately US$500 billion, covering nearly all of China’s exports to the United States. The economic cost of the trade war was increasingly visible in US and global manufacturing data, with the ISM manufacturing index declining below 50 — indicating contraction — in August, and global trade volumes showing measurable decline.
October trade talks between US and Chinese negotiators were scheduled, providing a potential avenue for de-escalation. But the history of the trade dispute had demonstrated that announced talks often produced limited tangible progress, and the structural issues — technology transfer, intellectual property, state subsidies, and market access — that drove the US complaints were not amenable to quick resolution. For Jamaica, the US-China trade war was relevant primarily through its impact on global growth. Every percentage point of slowing in global GDP growth dampens commodity prices, reduces the external demand environment, and tightens financing conditions for developing economies. A sustained trade war at current levels represented a meaningful headwind to Jamaica’s external environment.
Jamaica’s Mortgage Market Through September
Jamaica’s mortgage market operated in stable conditions through September 2019. The Bank of Jamaica’s policy rate was maintained at a level supportive of credit growth, with the BOJ’s inflation targeting framework providing the policy anchor. Commercial banks and building societies were actively providing mortgage finance, with the competitive market dynamics keeping offered rates accessible for qualified borrowers. The NHT’s programme continued its role as the foundation of affordable residential finance, with the J$6.5 million individual ceiling and subsidised 0, 2, and 4 per cent rates supporting demand from the contributor population. Jamaica’s labour market improvements and fiscal consolidation success over recent years had created a growing middle class of potential first homebuyers, providing structural support for NHT and commercial mortgage demand.
Looking Ahead
The US-China October trade talks are the most significant near-term external event, with the possibility of a framework agreement that could halt further escalation. The Federal Reserve’s October 29 to 30 meeting will determine whether a third 2019 cut follows, with markets assigning a meaningful probability to that outcome. For Jamaica, the IMF programme review and the start of the winter tourism season preparation will be the primary domestic economic focuses. The BOJ’s next policy assessment will reflect the global and domestic dynamics as they have evolved through October.
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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