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Hedge Clippings | 13 September 2024
After the last couple of weeks' war of words - or maybe that should be attacks on the RBA from both the treasurer Jim Chalmers, and ex-treasurer, Wayne Swan - life returned to normal this week, if there is such a thing. If nothing else, the less than subtle comments from each of them only served to reinforce the importance of central bank independence. The RBA may not be perfect, but having monetary policy dictated, or influenced by, the government of the day would be a dangerous and slippery slope.
The issue is not the fact that inflation is hurting the economy - that's a fact. The issue is that the RBA should not be at the beck and call of politicians who have a conflict of interest between sound economic policy, and remaining in power.
There will always be differing opinions and arguments as to the RBA's policy settings - did they move too slowly, or too far, or leave rates too high for too long. Unfortunately only time will tell. The RBA wasn't as aggressive as other central banks when increasing rates, and are possibly having to keep them higher for longer while managing persistent inflation alongside mediocre growth in a two speed economy. The RBA has clearly flagged that they don't anticipate an easing before next year - providing nothing changes. As such, don't expect any change on the 24th of September following the RBA's next board meeting.
Not so in the USA. On August 23rd, during his speech at Jackson Hole, Fed Chairman Powell said that "overall, the US economy continues to grow at a solid pace, but the inflation and labour market data show an evolving situation. The upside risks to inflation have diminished. And the downside risks to employment have increased. The time has come for policy to adjust."
Given those remarks, it seems pretty certain that the Fed will begin cutting rates at the end of its next FOMC meeting on September 18th. The only question among analysts seems to be the size of the cut, and the timing of the following one. Meanwhile, the ECB cut Eurozone rates by 0.25% this week. Both will put further pressure on the RBA, subject to labour force data, due next week, and August CPI, due just one day after their meeting.
In the meantime, the RBA will be doing everything to reduce consumer demand by keeping rates high, while the government does everything it can to put more money into consumers' pockets via stimulation and welfare measures.
The economic tug-of-war continues.
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