The RBA Governor gave us a break from interest rate rises on Tuesday, but made it clear, that if she has to, she will raise again. Is she being straight with us?
I don’t really want to write what I’m going to write because I don’t want to work against the Reserve Bank Governor, Michele Bullock’s warning to the spendthrifts of Australia that rate rises are more likely than rate cuts. However, what she is saying is what economists called jawboning, and this is about playing mind games with the public by threatening tough love, such as interest rate rises to ensure inflation falls, which ultimately is seen by her and others like her, as being good for us all.
Smart parents use jawboning and RBA bosses see themselves as people of virtue, who know better than the average Aussie, and in fact, it’s fair to say that they do, when it comes to being responsible.
Bullock’s actions are in contrast with her boss, Treasurer Jim Chalmers who has avoided the tough policy options, until his latest Budget, but even then he didn’t have the guts to hurt the people who vote for him. Sure, it’s smart politics to design policies featuring no negative gearing and a lower capital gains tax discount for property investors chasing existing properties, but Jim and his boss, Albo, know that these people are unlikely to vote for Labor anyway.
It’s not tough love. This is tough disdain.
Interestingly, the word is that the Budget’s perceived threats to aspirational Australians could see some Government backing down from the policies revealed on Budget night. Given this Labor team’s history, this would not be a surprise, as these guys have become famous for defying the old maxim of “treat ‘em mean and they will be keen”. Instead, they have treated the majority nice and so voters have been keen to support them at elections, but the price has been higher than expected inflation and higher than wanted interest rates.
It looks like Jim has been inspired by the Fleetwood Mac song sung by Christine McVie, which pleaded: “tell me lies, tell me sweet little lies”, but given our slowing economy, rising unemployment, rising inflation and interest rates, as well as now falling house prices, the Government’s policies have left a sour taste in many voter’s mouths. Undoubtedly many of them never imagined they would see all of these economic problems, when they gave Labor an historically big majority in the election for the House of Reps in last year’s poll.
On the other hand, Michele Bullock is not up for sweet little lies. She has given it to us straight, telling us inflation is “still too high” and she is up for “increasing the cash rate further if it is requited.”
Of course, she would say that because she is a responsible policy leader, but I suspect the state of the economy and the Trump peace dividend of lower oil prices will help lower future inflation, meaning further rate rises might not be necessary.
Ironically, Chalmers’ tougher Budget for property investors, business builders and other wealth-aspirational types has worried a lot more voters than the Treasurer and the PM would have anticipated, such that Pauline Hanson is now seen as the preferred Prime Minister!
Lies have consequences and I don’t think the Bullock warnings today are lies meant to trick us and scare us. I think the Governor has been straight with us that if the economy’s inflation is made worse by our big spending, then she will act by raising rates.
That said, she is an economist and she knows our economy is slowing and a fourth rate rise might be the straw that breaks the camel’s back throwing us into a recession she would prefer not to be associated with.
I reckon Bullock is thinking and hoping that if she plays it tough and jawbones us with timely warnings we might just make it possible for her to put her rate rising cue in the rack.
Go Michele!
Peter, I enjoy your analysis but I have to correct you on something. You’ve said we’re not in recession yet. Speak for your own corner of the world. I live in regional Queensland next to the most beautiful bay you could imagine. We’ve got a few Van Parks right next to the ocean where the Grey Nomads normally park up for the Southern Winter and spend their pensions & super drawdowns around town keeping the whole place afloat. Well we’re not floating here at the moment, we’re sinking. Businesses are closing left right and centre. To put it in Aussie parlance, We’re buggered.