Publication date: 5 September 2020 | Covering: August 2020
Monthly Briefing
- Breaking: Jamaica general election September 3: Holness/JLP win landmark majority; 49 of 63 seats
- Jackson Hole August 27: Fed adopts average inflation targeting; commits to letting inflation run above 2%
- Fed July 28–29 holds 0.00–0.25%; maintains emergency QE programme; economic recovery underway but fragile
- US summer COVID surge receding in August after devastating July peak in southern and western states
- BOJ overnight rate at pandemic-era low; Jamaica economy severely contracted; tourism near standstill
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; housing finance demand supported
Jamaica Election: Holness Wins Historic Mandate
In breaking news as this edition goes to press, Prime Minister Andrew Holness and the Jamaica Labour Party won a decisive general election on 3 September 2020, securing 49 of 63 parliamentary seats — a historic majority. The result, which far exceeded most pre-election polling, represents a powerful endorsement of the Holness administration’s handling of the COVID-19 pandemic and its pre-pandemic economic record, including years of consistent GDP growth, declining unemployment, and strong compliance with the government’s IMF programme. The People’s National Party, under Dr Peter Phillips, suffered its worst defeat in decades. For the property and mortgage market, the election result provides continuity and stability: the existing policy framework, including NHT operations, housing development priorities, and the government’s fiscal programme, will continue under the same administration with a strengthened mandate.
Jackson Hole: The Federal Reserve Transforms Its Framework
Federal Reserve Chair Jerome Powell’s keynote address at the Jackson Hole Economic Symposium on 27 August 2020 announced a fundamental shift in US monetary policy strategy. Powell introduced the Fed’s new average inflation targeting framework, which replaces the previous approach of pre-emptively tightening when inflation approached 2 per cent with a commitment to allowing inflation to run “moderately above 2 percent for some time” following periods when it has been below target. The framework also incorporated a broadened definition of maximum employment that gives priority to reducing labour market shortfalls rather than deviations in either direction. In practical terms, the new framework means the Fed will keep rates lower for longer than previous frameworks would have dictated, accepting some period of above-2-per-cent inflation as the price of ensuring a genuinely complete labour market recovery.
The Jackson Hole announcement was one of the most consequential shifts in US monetary policy in decades. By codifying a symmetric inflation averaging approach, the Fed committed to not pre-emptively tightening in the early stages of any recovery — a pattern that had in previous cycles led to hikes that cut short labour market recoveries. For Jamaica, the new framework reinforces and extends the expected period of accommodative US monetary policy. If the Fed will tolerate above-2-per-cent inflation for some time before tightening, the timeline for US rate increases is pushed out materially beyond prior market expectations. This is unambiguously supportive for the global financing conditions that underpin Jamaica’s commercial mortgage market.
Federal Reserve July Meeting and the US Recovery
The Federal Open Market Committee held the federal funds rate at 0.00 to 0.25 per cent at its July 28 to 29, 2020 meeting, maintained its asset purchase programme, and reiterated its commitment to using the full range of its tools to support the economy. Chair Powell’s press conference acknowledged that the economic recovery was underway but described it as uneven and fragile, noting the significant impact of the US summer COVID surge on activity in the service and hospitality sectors. The US unemployment rate, which had fallen from the April peak of approximately 14.7 per cent, remained above 10 per cent in July, reflecting the massive scale of the pandemic’s labour market disruption. The July meeting maintained the trajectory of full accommodation and provided no signal of any near-term policy change.
Jamaica Mortgage Market Through August
The Bank of Jamaica’s pandemic-era low overnight rate continued to provide the policy anchor for Jamaica’s mortgage market through August 2020. The BOJ moved early and decisively in the pandemic period to reduce its policy rate and implement emergency measures to support liquidity and credit conditions, and these accommodative settings remain in place. Commercial banks, building societies, and credit unions continued to lend in the mortgage market, though with heightened attention to borrower credit quality given the economic uncertainty. The National Housing Trust’s programme remained the most accessible source of subsidised mortgage finance, with the individual ceiling at J$6.5 million and rates of 0, 2, and 4 per cent. NHT had also implemented COVID-related relief measures to support contributors experiencing pandemic-related financial difficulty.
Jamaica’s broader economy remained severely contracted through August, with tourism at near-zero levels and multiple sectors operating below capacity. The government’s CARE programme and other support measures had provided some floor for household income, and remittance inflows — which had demonstrated unexpected resilience in the face of the global pandemic, partly reflecting the US fiscal stimulus payments to diaspora households — continued to provide important support for Jamaican family finances and property purchasing capacity.
Looking Ahead
The Federal Reserve’s September 15 to 16 meeting will be the first opportunity to embed the new average inflation targeting framework into formal policy guidance. Markets expect the FOMC to strengthen its forward guidance in line with the Jackson Hole announcement. For Jamaica, the new Holness government’s economic priorities and the opening of the winter tourism season will be the primary near-term determinants of economic momentum. The BOJ’s next policy communications will reflect the updated global monetary 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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