RBA governor warns of slow global economic decay due to Trump policies
Federal Reserve governor Michele Bullock has warned that the next five years could be marked by a slow-moving global economic deterioration as the unintended consequences of Donald Trump’s make-America policies translate into higher costs and slower growth.
In an exclusive interview, Bullock said the consequences of the Trump administration’s global tariff campaign would be similar to the distress affecting the British economy from Brexit.
As the first RBA governor to hold regular press conferences, he introduced his approach to communicating with the public by trying to explain difficult economic concepts as if he were talking to his mother.
The bank this week will publish a report on how it responded to 51 recommendations made by an independent review of the Reserve, which led to the institution’s most significant changes since it began targeting an inflation rate of 2-3 per cent in the early 1990s.
The changes included creating a separate committee to set interest rates, holding regular press conferences to announce decisions, and moving to less regular meetings lasting two days.
This is the largest increase in inflation since the 1980s, and it occurred amid economic turmoil caused by wars such as Russia’s invasions of Ukraine and Gaza, as well as economic turmoil caused by the Trump administration’s tariff policies.
In an interview with this imprint on Friday, Bullock said that the bank’s daily focus is on China and the broader Asian region, but that economic problems originating from the United States are a harbinger of tougher times ahead.
Former Bank of England senior official Andrew Hauser referred to the turmoil caused by his country’s departure from the European Union, his aide said.
“Andrew often talks about people saying as Brexit approached it would be a disaster. In fact it wasn’t. [immediately]”This was just a long-term disaster,” he said.
“It didn’t happen that way. [Bullock clicks her finger] – it was just a slow, slow decay.
“That’s how I feel about what’s going on in the world right now; nothing is falling off a cliff. But I think in five years we’ll look back and say it was the beginning of a beginning.” [decay].”
Bullock said the problems relate directly to nations’ overt policies to separate themselves from international supply chains.
“[It means] The slowdown in growth in world trade, the increase in tensions, the increase in sovereignty over goods, the slowdown in growth than it should be, [slower] productivity,” he said.
“What the US is basically saying is that instead of producing and importing things more efficiently elsewhere, we’re going to produce a lot of these things ourselves. [but] We are not as efficient as they are, which means there are consequences.
“There are all these kinds of unintended consequences. Most people would realize that these kinds of consequences could happen.
“All I’m saying is it will just lighten things up and things might be a little more lethargic.”
The reserve kept interest rates steady at 3.6 percent at its last meeting of the year, after making three cuts through 2025. Financial markets expect the cash rate to rise to 3.85 percent by August.
Bullock said that in previous periods of interest rate cuts, commercial banks did not fully reduce official cash interest rates. However, the entire three percent reduction in interest rates was reflected on debtors.
“We probably have slightly easier financial conditions than we might have had in the past,” he said.
In a development that surprised the Reserve, Bullock said consumers still appeared reluctant to spend consistently.
While spending is on the rise for big one-off events such as recent concerts by AC/DC, Oasis and Lady Gaga, Bullock said people are also hoarding cash in offset and redraw accounts.
“I think it’s also true that people can splurge on big events, but I think they tend to compensate a little bit by saying, ‘I’m doing this, so I’m not going to do that,'” he said.
Some critics argue that the bank’s struggle to keep inflation within its target band is fueled by federal and state government spending. Finance Minister Jim Chalmers is expected to confirm a budget deficit of around $40 billion this financial year when he publishes his mid-year financial update on Wednesday.
Bullock said governments are conscious of inflation when setting their budgets, but they are faced with many demands. The Central Bank should have focused on one thing; keeping inflation under control.
“I don’t see any point in telling governments what to do with fiscal policy,” he said.
“I don’t want them to tell me what to do with monetary policy, so I think I won’t tell them what to do with fiscal policy.”
An important part of the reserve’s reforms have been regular press conferences. Philip Lowe, Bullock’s predecessor and the first governor to hold news conferences, called them only to explain elements of the bank’s extraordinary QE policies during the pandemic.
Bullock admits he’s not a natural when it comes to media wrangling, but believes conferences have now gained a “nice rhythm.” But some economists are troubled by the nature of the Governor’s questions, which they say often come from the perspective of the “poor old man on the street.”
The governor is unrepentant about his approach and says his words were aimed at ordinary Australians, including his parents Nola and Ivan Droop.
“I tried to explain everything in a way that my mother could understand, if anyone was listening,” she said.
“He and his father are watching. Actually, they’re watching; they’re just not listening.”
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Shane Wright- Shane is the senior economic correspondent for The Age and The Sydney Morning Herald.Connect with: excitement or email.
