Publication date: 5 November 2019 | Covering: October 2019
Monthly Briefing
- Fed October 29–30 cuts 25bps to 1.50–1.75%; third 2019 cut; signals likely pause; mid-cycle adjustment phrase
- US-China Phase One framework announced mid-October; tariff escalation paused; agriculture purchases agreed
- US labour market remains strong; unemployment 3.6%; economy resilient despite trade uncertainty
- BOJ rate steady; Jamaica economic fundamentals solid; IMF programme compliance strong
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; housing demand well supported
- Jamaica tourism sector performing well; remittances strong; external account position manageable
Federal Reserve October Cut: Third of 2019
The Federal Open Market Committee delivered its third consecutive 25 basis point rate cut at the October 29 to 30, 2019 meeting, reducing the federal funds rate to 1.50 to 1.75 per cent. The decision was in line with market expectations, though not unanimous — two dissenting votes were cast by members who favoured holding rates unchanged, reflecting the internal debate about whether additional insurance cuts were warranted given the resilience of the US labour market and consumer spending. The post-meeting statement made a subtle but significant change in language: it removed the earlier commitment to “act as appropriate to sustain the expansion,” substituting a more neutral assessment of monitoring data to evaluate the appropriate path of the target range. Chair Powell, in his press conference, indicated that the Committee viewed the current stance as “appropriate,” signalling a higher bar for further action in either direction.
The three-cut sequence of 2019 — July, September, and October — represented an insurance-oriented recalibration, not a crisis response. The Fed was acting to extend the economic expansion in the face of trade policy uncertainty, slowing global growth, and persistently below-target inflation, using the conventional tool of rate cuts to provide a financial conditions buffer. For Jamaica, the 75 basis point total reduction in the federal funds rate since July provides a modestly more accommodative global financing backdrop than the 2.25 to 2.50 per cent environment of late 2018. Jamaican lenders benefit from lower US dollar funding costs, and the global risk appetite that Fed accommodation supports is constructive for Jamaica’s access to international capital markets.
US-China Phase One: A Trade War Truce
US and Chinese trade negotiators announced an “agreement in principle” on a Phase One trade deal in mid-October 2019, pausing the escalatory cycle that had defined the trade relationship through 2018 and much of 2019. The framework committed China to purchasing substantially increased volumes of US agricultural products, provided protections for US intellectual property, included provisions on currency manipulation, and established a mechanism for dispute resolution. In return, the United States agreed to refrain from implementing the additional tariffs that had been scheduled for 15 October on US$250 billion of Chinese goods. The agreement, if formalised, represented the first meaningful de-escalation of the trade war in over a year.
For Jamaica, the trade truce is constructive for the global economic environment. The US-China trade conflict had weighed on global manufacturing, investment, and growth through 2018 and 2019, contributing to the slowdown that had prompted central bank easing in multiple countries. A Phase One deal that prevents further escalation removes a significant downside risk to the global economic outlook. The improved global sentiment also supports the risk appetite that benefits emerging market and developing economy financing conditions, including Jamaica’s. However, the structural aspects of the US-China relationship — technology competition, market access, and strategic rivalry — remain sources of long-term friction.
Jamaica Mortgage Market: Stable Conditions
The Bank of Jamaica’s overnight policy rate was maintained at a level supportive of competitive commercial mortgage finance through October 2019. The BOJ’s policy framework, operating under the inflation targeting regime that had replaced the prior monetary targeting approach, aimed to keep inflation within the 4.0 to 6.0 per cent target band while supporting economic growth. System liquidity was adequate and the banking sector was sound, providing a stable foundation for mortgage market activity. Commercial banks, building societies, and the NHT were all actively lending in the residential mortgage market.
The NHT’s programme remained the bedrock of affordable housing finance. The J$6.5 million individual loan ceiling and subsidised rates of 0, 2, and 4 per cent were providing critical support for first-time buyers and lower-to-middle income households. Demand for NHT loans was robust, reflecting Jamaica’s persistent housing supply deficit and the aspiration of homeownership among the contributor base. The government’s fiscal consolidation — maintained under IMF programme discipline — had reduced the risk premium on Jamaica’s sovereign debt, indirectly supporting the overall financial system stability on which the mortgage market depends.
Looking Ahead
The formal text of the US-China Phase One deal is being negotiated, with a signing ceremony expected before year-end. The Federal Reserve’s December 10 to 11 meeting will be closely watched for confirmation of the pause, with markets pricing in no further cuts in 2019. For Jamaica, the approaching winter tourism season and the government’s fiscal outturn for the first half of the 2019 to 2020 fiscal year will be important near-term indicators. The BOJ’s next policy communications will reflect its assessment of inflation and growth dynamics in the evolving global environment.
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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