Publication date: 5 January 2020 | Covering: December 2019
Monthly Briefing
- Fed December 10–11 holds 1.50–1.75%; signals pause after three 2019 cuts; “mid-cycle adjustment” complete
- US-China Phase One deal agreed in principle December 13; signing expected January 15; trade truce
- UK general election December 12: Johnson wins decisive majority; Brexit now assured by end January 2020
- US economy closes 2019 strongly; unemployment 3.5%; consumer spending resilient; equity markets at highs
- BOJ rate supportive; Jamaica closes 2019 with solid fundamentals; winter tourism season commencing
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; housing demand healthy into new year
Federal Reserve December Meeting: Pause Signalled
The Federal Open Market Committee held the federal funds rate at 1.50 to 1.75 per cent at its December 10 to 11, 2019 meeting, the rate level established by the third successive 25 basis point cut in October. The post-meeting statement and Chair Powell’s press conference conveyed a clear message: the three 2019 cuts had been the appropriate “mid-cycle adjustment” to insure against downside risks from trade policy uncertainty and slowing global growth, and barring a material change in the economic outlook, the FOMC expected rates to remain on hold. The dot plot showed the median participant projecting no rate changes in 2020. Powell reinforced this message by indicating that the current rate was likely to remain appropriate “as long as incoming information about the economy remains broadly consistent with our outlook.”
For Jamaica, the Fed’s December pause signal means the global rate environment is broadly stable. After a year of three successive cuts that eased financial conditions, the US policy rate has settled at 1.50 to 1.75 per cent, providing a supportive backdrop for global capital flows, risk appetite, and the external financing conditions that underpin Jamaica’s access to international markets. The BOJ’s own policy rate, while at a different level reflecting Jamaica’s domestic conditions and macroeconomic management, benefits from the anchoring effect of a stable and accommodative global monetary policy environment.
US-China Phase One Deal and UK Election: Year-End Clarity
December 2019 produced two important resolutions to global policy uncertainties that had weighed on economic confidence throughout the year. On 13 December, the United States and China announced a Phase One trade deal in principle, with both sides agreeing to sign the formal agreement on 15 January 2020. The deal included US tariff reductions and Chinese commitments to purchase US$200 billion in additional US goods and services over two years, representing the most significant de-escalation in the trade conflict since it began in 2018. Although Phase Two negotiations and the structural issues at the heart of the trade dispute remained unresolved, the Phase One deal removed the immediate threat of further tariff escalation and provided a foundation for a more stable trading relationship in 2020.
On 12 December, the United Kingdom held a general election that produced a decisive majority for Prime Minister Boris Johnson’s Conservative Party — 80 seats, the largest Conservative majority since 1987. The result resolved the political deadlock that had prevented Brexit’s implementation for more than three years, making the UK’s departure from the European Union by the January 31 deadline essentially certain. For global markets, the election outcome reduced a major source of political and economic uncertainty, with Sterling strengthening sharply and UK asset prices rallying. For Jamaica, with deep historical and diaspora ties to the United Kingdom, the Brexit resolution carried long-term implications for UK-Jamaica trade, migration, and development assistance relationships.
Jamaica Closes 2019 on Solid Fundamentals
Jamaica’s economic performance in 2019 — the last full pre-pandemic year — reflected the culmination of several years of structural reform and macroeconomic stabilisation. GDP growth, while moderate by regional standards, was positive and employment levels were at multi-year highs. The government’s compliance with its Extended Fund Facility with the IMF had been strong, with Jamaica consistently meeting its fiscal targets and implementing the structural benchmarks required by the programme. The tourism sector had performed well, with stopover arrivals growing year-over-year and cruise passenger numbers maintaining their strong trajectory. Foreign exchange reserves were at comfortable levels, the current account deficit was manageable, and investor confidence in Jamaica’s macroeconomic framework was firm.
In the mortgage market, the Bank of Jamaica’s policy rate provided a supportive environment for commercial lending. The NHT’s programme — individual ceiling J$6.5 million, rates 0, 2, and 4 per cent — was actively supporting the affordable housing segment, with strong contributor demand for loans. Commercial banks and building societies were competitive in their mortgage offerings, reflecting system liquidity and a sound banking sector. The winter tourism season, which had begun in December, was off to an encouraging start, providing positive signals for the external account and household income through the first half of 2020.
Looking Ahead
The formal signing of the US-China Phase One deal on 15 January will be the first major economic milestone of 2020, followed by the UK’s departure from the European Union on 31 January. The Federal Reserve’s next meeting is scheduled for 28 to 29 January. Worth noting is a cluster of unusual pneumonia cases that emerged in Wuhan, China in late December — reported to the WHO on 31 December — which health authorities are investigating. The nature and extent of this outbreak will be closely watched. For Jamaica, the winter tourism season performance and the NHT’s loan disbursement activity through the first quarter will be early indicators of 2020’s economic trajectory.
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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