Hedge Clippings | 20 October 2023
Last week Hedge Clippings noted that "Central Bank Speak" involves the specialised art of covering all bases and potential outcomes, whilst not actually confirming what you're really thinking, or going to do. The exception of course is when they actually raise or cut rates, in which case they refer you back to their previous comments, and basically say "I told you so", or "don't say we didn't warn you."
So while US markets are tossing up between rates staying as they are, or possibly rising one more time, Jerome Powell's overnight comment that "a range of uncertainties, both old and new complicate our task of balancing the risk of tightening monetary policy too much, against the risk of tightening too little" didn't actually say anything we didn't know, except they haven't made their mind up yet.
To be fair to Powell, and the RBA's Michele Bullock if it comes to that, the US economy is evenly poised, balanced between trying to re-bottle inflation to get it back to the 2% target, maintaining sufficient growth and employment, and without risking "unnecessary harm to the economy" as he puts it. Powell's problem is that achieving both is a very difficult balancing act. The market is currently betting on the Fed holding the line at their upcoming meeting at the end of this month, but has no such certainty looking forward to December.
Back home, the ABS released their Australian labour force figures, and on the surface, little had changed. Unemployment decreased fractionally on seasonally adjusted terms to 3.6%, with total employment edging up by just 6,600 but with full-time jobs decreasing by 39,900 offset by part-time jobs increasing by 46,500.
The RBA wouldn't have been too pleased with those numbers in their efforts to return the cash rate to their preferred 2-3% target band, having previously indicated that unemployment around 4.5% is necessary to cool the economy, and thereby tame inflation. Next week's September CPI figure, due on Wednesday, followed by PPI results on Friday, will give a clearer picture of the outlook. Meanwhile, the minutes of the RBA's September meeting revealed the board didn't consider a rate cut as an option - it was either leave rates as they are, or increase them by 0.25%. That's likely to be the case again at their next meeting due on Cup Day.
At this stage, we'd still favour an extension of the "pause" but wouldn't want to bet the house on it. As the previous governor was keen to say, "it's a very narrow path."
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