Publication date: 5 July 2021 | Covering: June 2021
Monthly Briefing
- Fed June 15–16 surprise: dot plot shifts; seven of eighteen participants now project 2022 rate hike
- US vaccination drive approaching July 4 targets; economy reopening at pace; inflation at 5 per cent
- BOJ overnight rate held at pandemic-era low; Jamaica inflation above BOJ target midpoint
- NHT individual ceiling J$6.5 million; rates 0, 2, 4 per cent; affordable housing demand remains strong
- Jamaica tourism recovery building cautiously; summer 2021 bookings improving
- US and Jamaica consumer confidence rising; labour markets recovering; diaspora remittances strong
Federal Reserve June Meeting: A Hawkish Surprise
The Federal Open Market Committee’s June 15 to 16, 2021 meeting produced a notable hawkish shift that surprised financial markets. The Committee held the federal funds rate at 0.00 to 0.25 per cent and maintained the existing asset purchase programme at US$120 billion per month, but the accompanying Summary of Economic Projections — the so-called dot plot — showed a material change in participant rate expectations. Seven of the eighteen FOMC participants now projected a rate increase in 2022, compared with none at the March meeting, and the median projection shifted to two hikes by end-2023. The median longer-run projection was revised upward, signalling that the FOMC’s collective view of the neutral rate had moved.
Chair Powell’s press conference attempted to soften the hawkish signal, emphasising that the dot plot projections were individual views rather than a Committee commitment, and that substantial further progress was still required before any taper would be considered. Nonetheless, markets interpreted the June meeting as a meaningful shift in the Fed’s posture, with shorter-dated Treasury yields rising and the US dollar strengthening. For Jamaica, the June FOMC meeting was an important signal that the ultra-low global rate environment has a finite lifespan. The scale and pace of future US rate increases will shape the global financial conditions that feed through to Jamaica’s commercial mortgage market over the coming years.
US Reopening: The Fastest Recovery in a Generation
The United States economy was in the midst of an extraordinary reopening acceleration through June 2021. President Biden’s July 4 vaccination target of 70 per cent of adults receiving at least one dose was approaching fulfilment, and the removal of COVID-related restrictions across most states was driving a surge in consumer spending, travel, and service sector activity. Non-farm payroll growth was running at several hundred thousand jobs per month, and GDP was on track to recover to pre-pandemic levels by mid-year. US CPI inflation reached 5.0 per cent in May 2021, the highest reading since 2008, driven by a combination of base effects, supply chain disruptions, and robust consumer demand unleashed by fiscal stimulus and pent-up saving.
The strong US economic performance is directly relevant to Jamaica through multiple channels. Remittance inflows from the Jamaican diaspora in the United States — a critical source of household income and foreign exchange — have remained robust and are broadly correlated with US employment conditions. The US travel recovery is also feeding into Jamaica’s tourism sector, with North American visitors representing the dominant source market. A continued US growth acceleration supports the external environment for Jamaica’s economic recovery, even as the Fed’s evolving rate stance introduces medium-term headwinds for global financing conditions.
BOJ and Jamaica’s Mortgage Environment
The Bank of Jamaica’s overnight policy rate remained at its pandemic-era accommodative level through June 2021. Jamaica’s inflation has been running above the BOJ’s 4.0 to 6.0 per cent target band midpoint, driven primarily by food and energy price increases with a significant global supply chain component. The BOJ has signalled heightened vigilance on inflation while maintaining an accommodative policy stance to support the economic recovery. The balance between these objectives will become more complex as global monetary conditions progressively tighten.
For property buyers, the current environment continues to offer favourable mortgage conditions. Commercial bank mortgage rates remain at historically competitive levels, underpinned by system liquidity and low BOJ policy rates. The National Housing Trust’s loan programme — J$6.5 million individual ceiling, rates of 0, 2, and 4 per cent — continues to underpin affordability at the entry-level of the market. Property prices have been creeping upward, reflecting both construction cost inflation and strong underlying demand, but the combination of NHT subsidised finance and commercial mortgage availability is sustaining purchasing activity.
Tourism Recovery: Cautious Optimism
Jamaica’s tourism sector continued its gradual recovery through June 2021. Visitor arrivals remained well below 2019 levels, but the trajectory was meaningfully positive: air access was expanding, hotels were reopening, and summer 2021 bookings were showing encouraging signs. The government’s resilient corridor model, introduced during the pandemic to allow vaccinated and tested visitors to travel to designated resort areas, had provided a framework for maintaining some tourism activity even during periods of higher COVID transmission. As vaccination rates in key source markets rose through June, the outlook for summer and autumn arrivals improved.
The tourism recovery is an important upstream driver of Jamaica’s property market dynamics. Direct employment in hotels, attractions, and related services, combined with the multiplier effects through local supply chains, supports household income and spending capacity across major tourism parishes. Diaspora and expatriate demand for Jamaican residential and vacation property is also sensitive to perceptions of the island’s economic momentum and tourism vibrancy. A sustained tourism recovery would provide meaningful support to the broader property market environment.
Looking Ahead
The next FOMC meeting is scheduled for July 27 to 28, at which markets will look for further guidance on the taper timeline and any adjustments to the forward guidance following the June dot plot shift. For Jamaica, the summer tourism season will provide important near-term signals about the recovery trajectory. The BOJ’s upcoming policy communications will be closely watched for any shift in stance in response to persistent inflation above target.
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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