No, the RBA doesn’t know what’s happening with inflation either

Michael Pascoe is an RBA watchdog for decades. He is upset that Mayor Michele Bullock now has to confront the media after every board meeting.

This is just my guess, but I’d bet the thing Governor Bullock regrets most about his predecessor was swallowing the entire review of the bank from Jim Chalmers, who came up with the idea of ​​holding a media conference after every board meeting.

Of course, it is in the media’s interest for the President to ask questions, to give us information to fill in the blanks, and it should be best practice for the central bank to “communicate” with the public. But the truth is that exercise is mostly pointless.

Some questions are naive in their quest for simplicity.

Five-second scramble for “moms and dads”,

others are politically charged, while others try to be too clever by half-pushing a preconceived idea. I know, I asked some of them myself.

Rates are fixed!

But on days like Tuesday, I can only feel sorry for the Governor. The only thing the board could say about the decision to keep interest rates constant at the meeting was said in the announcement made at 14.30.

Quite simply, the RBA doesn’t know where inflation will go next. Nobody does. No one could do this, given the multiple wheels in motion and the impossibility of predicting human emotions.

Having raised rates at each of the previous three meetings to what the bank considers a mild contraction, seeing the jump in the unemployment rate, knowing that wages show no signs of an inflationary spiral, knowing that last month’s key assumptions on oil were to hope black goods prices would continue to the level they were when Trump’s war began, wondering how sharp the (negative) wealth impact of falling residential property prices would be, and yet the fact that inflation is still above target means there is no way the board has the confidence to act on pause to see what happens next Do anything other than.

Board expression He kind of said these things. He chose to end with the most obvious and tired old saying from the RBA’s stock of clichés:

“Monetary policy is well positioned to respond to developments and the Board is focused on the task of achieving price stability and full employment. It will do what it deems necessary to achieve this outcome, including further raising the cash rate target if necessary.”

This is in the “no shit Sherlock” category. Translation: When we think we know what we’re doing, we do what we have to do.

whatever it takes

That’s what the RBA is there to do. There are few things more confusing than reading stories that make it sound like it’s news to this experienced hack that the bank is ready to do whatever he deems necessary. The religion of the Pope, where bears defecate, where the sun rises, etc.

There is a way of thinking that central banks are better off when they believe they know more than the market; a belief promoted by central bankers who never voice that they do not know more than anyone else. This gave the bank more authority and made people have more trust in it.

This kind of arcane wisdom is outdated.

Now we all know that the central bank consists of a bunch of econocrats who are doing the best they can, but who, like everyone else, lack divine guidance and are therefore as capable of making mistakes as everyone else.

I have previously quoted “bond dog” and British financial commentator Anthony Peters on the dilemma of central banking. Being on the Bank of England’s Monetary Policy Committee is a good thing for Derek and Clive to ask “what’s the worst job you’ve ever advertised?” He thinks he will follow his old routine.

“You sit in the MPC of the Bank of England and you know that when you do it right, no one remembers, and when you do it wrong, no one forgets.”

The same goes for the RBA monetary policy board. And there is no acceptance of not knowing what will happen next.

This does not mean that there is nothing to discuss.

What is ‘full employment’?

The constant for me is understanding what “full employment” could be in Australia. The tendency to say that unemployment is still “historically low” at 4.5 percent betrays a sad choice of historical periods.

Since COVID, unemployment below 4 has become normal. Just as it is a problem for inflation to remain above 3 percent, it is also a problem for unemployment to be 4.5 percent and increasing. The RBA should not be allowed to cheat by claiming that “full employment” is whatever the unemployment rate is when inflation is where it should be.

The new attraction of this month’s board meeting is speculation about what falling house prices are doing to consumer sentiment.

Rising prices create the “wealth effect,” which makes people feel richer and more likely to spend. The opposite also happens.

Terrible CGT

Add in the media campaign declaring the end of capitalism if Labour’s modest CGT and negative gearing reforms come through and spending confidence is again threatened.

There is also the real and growing impact of AI on employment and employment security.

Tight monetary policy isn’t the only thing that can slow an economy.

No wonder then that the RBA wants to pause, as always, with all options open. Because of the uncertainty, the Governor is speaking a little harshly to remind people.

RBA raises rate puts pressure on Chalmers’ tax evasion