While our Reserve Bank may often be late to the party, this increase in unemployment should crash any view that there’ll be more rate rises ahead.
After three interest rate hikes this year and a surge in petrol prices, which has been akin to one or two more interest rate-like hits on consumers’ budgets, unemployment spiked in April. And now money market experts are thinking that maybe the RBA is done with rate hikes.
Of course, there are still economists who see more rises ahead, but these people didn’t see these recent rate hikes last year, when the RBA was cutting the cash rate from 4.35% down to 3.6%, only to discover that they’d guessed inflation wrong. So the big bank took us back to 4.35%.
As Homer Simpson would say after such a screw-up: “Doh!”
One thing the RBA has got right has been its messaging to economists, who are paid to interpret the central bank’s possible future actions. The RBA message has been that “because of the inflation from the Iran war, get prepared for more rate hikes”. That’s a scare tactic called “jawboning”, and it can work.
By the way, it’s not like the RBA is lying, because as George Costanza argued in the TV show Seinfeld: “It’s not a lie if YOU believe it.” The RBA can be out of touch with the real economy as the “2025 Rate-Cut-Rate-Rise” show showed last year.
But now the latest jobs report has become food for thought for our central bank and the money market and here’s why:
- Unemployment is near a 5-year high of 4.5% after last month being 4.3%.
- 18,600 people lost jobs over April, as economists tipped there’d be 15,000 more people in work.
- 56,400 fewer workers aged 15 to 24 lost jobs over the month.
- Historically, this has been ‘a canary in the coalmine’ indicator for the whole job market and the economy.
- It could be partly caused by AI taking jobs.
- It also could be because of pretty hefty increases in the minimum wage that a lot of younger workers are on.
As a consequence of these numbers, money markets are pricing in a low 8% chance of a rate rise in June, which makes perfect sense.
Treasurer Chalmers was more focused on his news that 1.2 million jobs had been created in the four years that he has been running the show, but it looks like he’s more concerned about the past than the future.
And because of his Budget, the real job creators i.e. entrepreneurs, business owners and investors, are totally spooked about changes to the capital gains discount and negative gearing. In simple terms, Chalmers hasn’t created the conditions to encourage risk taking and the related investment, which then creates jobs.
Because his Budget decisions will have a big bearing on what the economy does, all this negativity from the Budget, which has seen Angus Taylor become the preferred PM, could actually be taken on board by the RBA and might help them stop interest rate rises, at least for the short term.
Of course, if this current negativity we see in business and consumer confidence on top of job losses continues in coming months, then the RBA could well be ‘done n’ dusted’ with rate rises.
I truly hope so, because both Paul Keating and Donald Trump agree that their central banks are “always late to the party!”
And Peter, meantime, inflation keeps ticking up. Of course Chalmers will blame the war
However the over arching problem is that our living standards keep eroding
😡
No matter what you say, inflation has to be pulled into line.