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Printed: 13 July 2024 1:04 AM


22 Mar 2024 - Hedge Clippings | 22 March 2024



Hedge Clippings | 22 March 2024

While everyone (or nearly everyone) is comfortable that the direction of the next interest rate move is downwards, anyone hoping for clarity on the timing of a cut in Australia would have been disappointed by the RBA's post meeting statement this week. Just take the final paragraph of Michele Bullock's media statement:

"While recent data indicates that inflation is easing, it remains high ... it will be some time yet before inflation is sustainably in the target range. The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain, and the Board is not ruling anything in or out ... and will rely upon the data and the evolving assessment of risks.

In other words, we a) either don't believe the numbers, or b) don't want to fall into the trap that Philip Lore did, and make any prediction.

Over in the US Jerome Powell wasn't much more helpful: While noting that inflation has cooled considerably from its peak, he added, "inflation is still too high, ongoing progress in bringing it down is not assured and the path forward is uncertain."

"The risks are really two-sided here," Powell said. "We're in a situation where if we ease too much or too soon, we could see inflation come back. And if we ease too late, we could see unnecessary harm to employment." In spite of Powell's two-bob-each-way comments, the market took notice of the US Fed's "dot plot" that there would be three movements of 0.25% later in the year.

To be fair to the RBA, there are still some known knowns and resulting known unknowns clouding the issue. In July the Stage lll tax cuts take effect, last week aged care workers were (deservedly, in our opinion) awarded wage rises of up to 28%, and there's a risk of flow ons to other sectors as a result. On top of that unemployment unexpectedly fell to 3.7%, in spite of Australia's population growing by 2.5% to September 2023, 83% of which came from net overseas migration totalling 548,800 people. Given housing starts have been inadequate for the past 10 years to cater for the increase in population, that's likely to keep the cost of buying - or renting - a home higher, adding to the inflation pressure.

Hedge Clippings has been saying for a while that inflation's "last mile" down from 3.4% to a sustainable 2.5% is going to be a slow process, and the RBA's comments above would seem to bear that out.

Meanwhile back to one of our regular, and we have to admit favourite subjects on a Friday afternoon, "The Donald." Trump, who along with his adult sons, is facing somewhat of a liquidity crisis as he battles multiple court cases, ranging from fraud over the value of his New York property empire (bond required of US$355 million, plus interest), through to damages and defamation of E. Jean Carroll following a finding of sexual assault.

To give an Australian flavour to the Donald's news feed, this week he gave a little slap to another of our old favourites, ex PM and now ambassador to the US, none other than Kevin '07 Rudd. It turns out that like us, Rudd has been less than complimentary in the past when referring to Trump, who in turn has added our Kevin to his "List" of those he thinks poorly of. The only hope for Kevin is that while Trump is quick to add names to his list, he is equally quick to remove them if it suits the moment.

Hedge Clippings has an old (nameless) friend who has also been known to add the names of those who have displeased him over the years to his own list, but unlike Trump, once on, the names very rarely, if ever, are taken off!

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