Publication date: 5 December 2019 | Covering: November 2019
Monthly Briefing
- Fed October 30 cut 25bps to 1.50–1.75%; signals likely end of mid-cycle adjustment; pause ahead
- US-China Phase One trade deal talks continuing; negotiators closer; tariff truce maintained
- US equity markets at all-time highs in November; economy resilient; unemployment 3.6%
- UK election December 12 upcoming; Johnson vs Corbyn; Brexit resolution in sight
- BOJ rate supportive; Jamaica economy steady; NHT J$6.5 million ceiling; rates 0, 2, 4 per cent
- Jamaica winter tourism season preparing to begin; strong fundamentals entering end of 2019
Federal Reserve October Cut: Completing the Mid-Cycle Adjustment
The Federal Open Market Committee cut the federal funds rate by 25 basis points at its October 29 to 30, 2019 meeting, bringing the target range to 1.50 to 1.75 per cent. The cut was the third consecutive 25 basis point reduction of 2019, following cuts at the July and September meetings. Significantly, the October statement removed the prior commitment to “act as appropriate to sustain the expansion,” replacing it with language about monitoring “incoming information” as the Committee assesses future action. Chair Powell signalled in his press conference that the Committee viewed the three-cut sequence as likely to be the appropriate adjustment — a “mid-cycle adjustment” — and that the bar for further action had risen. Markets interpreted the communication as a signal that the cutting cycle was likely complete, barring a material deterioration in the economic outlook.
The Fed’s mid-cycle adjustment was motivated by three primary factors: slowing global growth, elevated trade policy uncertainty from the US-China dispute, and below-target inflation. By October 2019, the trade situation had tentatively stabilised, global growth showed some signs of bottoming, and the US labour market remained robust. In this context, three insurance cuts were deemed sufficient. For Jamaica, the completion of the Fed cutting cycle at 1.50 to 1.75 per cent represents a modestly accommodative global rate environment — not at emergency lows, but materially below the 2.25 to 2.50 per cent peak of late 2018. This backdrop supports Jamaica’s external financing conditions and the competitive commercial mortgage environment.
US-China Trade Talks: Cautious Progress
The US-China trade situation through November 2019 was characterised by cautious progress toward the Phase One agreement that both sides were seeking. US and Chinese negotiators had met in Washington in mid-October, with both sides announcing a framework for a “Phase One” deal covering Chinese agricultural purchases, intellectual property protections, and some tariff adjustments. The formal text of the agreement was being negotiated through November, with both sides expressing confidence that a deal could be concluded before year-end. US equity markets responded positively to the trade optimism through November, with major indices reaching successive all-time highs as trade uncertainty — one of the primary risk factors weighing on global business investment — appeared to be abating.
For Jamaica, a resolution of the US-China trade dispute would be unambiguously positive for the global growth outlook and, by extension, for the external environment that shapes the island’s tourism performance and access to international financing. The trade war had been a drag on global growth and business confidence throughout 2018 and 2019, contributing to the global slowdown that had prompted the Fed’s three insurance cuts. A Phase One deal would remove that specific headwind, even if the structural US-China technology and trade competition remained unresolved.
Jamaica Mortgage Market: Stable and Supportive
Jamaica’s mortgage market through November 2019 operated in a stable and broadly supportive environment. The Bank of Jamaica’s policy rate, maintained at a level designed to support the economy while keeping inflation within the target range, provided a foundation for competitive commercial mortgage offerings. The NHT’s programme remained the primary vehicle for affordable residential finance, with the J$6.5 million individual loan ceiling and subsidised rates of 0, 2, and 4 per cent supporting demand from the contributor base. System liquidity was adequate, and commercial banks and building societies were active in the mortgage market. Jamaica’s improving macroeconomic fundamentals — declining unemployment, fiscal consolidation, and sustained GDP growth — were creating positive conditions for household balance sheets and residential property demand.
The IMF’s Extended Fund Facility arrangement continued to provide Jamaica with both a policy anchor and a financial backstop. Strong programme compliance had earned Jamaica considerable credibility with international investors and lenders, supporting access to international capital markets at relatively favourable rates. This institutional credibility provided important support for the broader macroeconomic framework within which the mortgage market operates.
Looking Ahead
The Federal Reserve’s December 10 to 11 meeting will be closely watched for confirmation that the pause is intact, or for any adjustment to the outlook following the November economic data. The UK general election on 12 December will determine the Brexit path and the implications for UK-Jamaica relations. The US-China Phase One deal signing, if completed in December or early January, would be a major positive catalyst for global risk sentiment. For Jamaica, the opening of the winter tourism season and the NHT’s loan disbursement performance through the first quarter of 2020 will be the primary near-term indicators.
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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