Anyone sweating on no interest rate rises this year and praying for a cut shouldn’t give up hope. This is despite too many economists and newspaper headlines tipping rate rises are coming. And the consensus among the rate rise crew is two this year. But will they be right?

Economists are trained to forecast where the economy and important indicators (such as inflation, unemployment, interest rates, the dollar and so on) are going. However, because people and the economies they create are so complex, there’s still a lot of guessing when it comes to the predictions of economists.

However, what helps economists ‘guess’ better is critically important economic data. Between this week and next Wednesday, we should get the news that will break mortgage holders hearts or get them breathing a sigh of relief.
Of course, there’s a lot of economic news between now and February 3 when the RBA makes its first interest rate decision for 2026 but let me give you the dates and data drops that will make or break borrowers hearts and hopes. Here they are:

1. This Thursday (January 22) we see the latest unemployment number. If it’s a strong/good number it will encourage an RBA rate rise. A weak number helps keep rates on hold. A shock jump in the jobless figure would put rate cuts back on the table, but this is not expected.
2. On the following Wednesday (January 28), we see the December quarter Consumer Price Index. This has to deliver surprisingly good inflation readings for the RBA to stop hinting about the need to raise rates.
3. Other economic data will be looked at, such as last week’s consumer sentiment reading, which wasn’t good and coincided with talk about rate rises. But in the minds of RBA board members who decide on rate changes, unemployment and inflation are the main games in town.

Early in January I looked at the survey from the AFR’s Cecile LeFort, and this is what I deduced from the 38 economists’ predictions:
1. The CBA and NAB economics teams expect a rate rise next month, taking the cash rate from 3.6% to 3.85%.
2. 17 out of the 38 economists surveyed tip at least two hikes this year!
3. However, 16 out of this group see (wait for it) no changes in rates this year.
4. And it gets better for those praying for a cut. Nine economists see the cash rate below the current 3.6% by year’s end!
5. So, adding the ‘no change’ economists to the ‘rate cut’ economists, we now have 25 out of 38 economists not thinking that we’ll see a rate rise this year!
6. But wait, there’s more, with four economists seeing at least two cuts this year, with Yarra Capital Tim Toohey telling us that the cash rate might be 2.85% by Christmas this year!

As you can see, despite headlines and noisy economists in the news, interest rate rises are no certainty in 2026. The RBA doesn’t want to raise interest rates, but it will if the labour market looks strong and inflation isn’t falling. And that’s why data drops for these two economic indicators are the big watches for the next two weeks.

By the way, lower inflation that might stop rate rises and put rate cut speculation back in the news would be great for the stock market, which has underperformed many of the big global share markets. If this happened, it would be great for our super returns.

 

My wife received a book on Christmas morning ahead of a big day of festivities with our family. It was over 500 pages thick, and its title wasn’t bound to stimulate positivity! That title was: 1929: THE INSIDE STORY OF THE GREATEST CRASH IN HISTORY!

Author Andrew Ross Sorkin also wrote Too Big To Fail that captured the drama behind the GFC and what was done to avoid a 1930s-style Great Depression.

Sorkin is also co-host on CNBC’s Squawk Box, a New York Times writer and co-creator of the TV show Billions.

He’s an impressive guy!

History will record that Maureen couldn’t put this heavy book down as she learnt about the big business stars of the Roaring 20s in the US and how they contributed to the biggest crash and worst economic depression of all time.

Her excitement was such that I indirectly read the book as she read aloud countless exposes for my benefit about some of the astounding practices that sowed the seeds of the market crash on 29 October 1929.

These intermittent readings were a bonding experience of a money kind, which of course was something I could relate to!

The book is timely as Artificial Intelligence has become the potential problem that could trigger a market crash as the US stock market has surged on the huge investment and speculation around what AI will deliver in terms of productivity and profits. Ultimately, if AI is the magic pudding that Wall Street sees it as, then a market crash could be averted or at least delayed.

And as a financial advisor and market commentator whose job is to be a market messenger, the question around the promise of AI is critically important for a number of reasons.

First, I want to keep delivering good returns for my clients’ portfolios. Second, I don’t want to go too defensive too early and perhaps miss out on another good year for market returns. Third, I want to be relatively cashed up when the AI is found to be a bubble, and it bursts.

However, be clear on this: I don’t know if AI is a bubble. While I can’t rule it out, I’m not going to be a doubter just because I can’t be confident about its potential. What I’m seeing is some of the smartest people on the planet throwing billions, no trillions, of dollars at what AI is bound to do. So, this is a work in progress, where reporting seasons will be important for telling us about how this new technology is delivering.

Overnight, one of the titans of tech and AI i.e., Taiwan Semiconductor announced another record quarter result and informed the market it would pump up spending on AI-related capital outlays by as much as US$56 billion! As CNBC reporters put it: “Signalling confidence in the artificial intelligence buildout from the world’s largest contract chipmaker.”

This reaction to CNBC from Kim Forrest, investment chief at Bokeh Capital Partners sums up the current feeling about AI: “Taiwan Semi’s results today, and more importantly, their capex spending plans, point to reassuring investors that the AI trade is not necessarily a bubble at this point. “They’re going to spend money, lots of money, to build out capacity.”

Provided over the next month or so with reporting season in the US, we see other big AI players being consistent with their messaging on AI and related spending, then bubble fears will dissipate. Clearly, if the opposite happens, then a market slide would be inevitable.

Are we talking a crash?

Not sure on that one. While the GFC brought a 50% crash in stocks, behind that was a problem with an investment product called collateral debt obligations (CDOs) that the debt ratings agencies inaccurately assessed. Shock revelations lead to big crashes and investors rushing for the exits at the same time.

The AI boom and the levels of debt that governments, businesses and individuals hold could sow the seeds for a big market slump in the future. However, I do think governments and central banks are miles better at managing the economic fallouts of market madness. However, that doesn’t mean that bankruptcies, job losses and people losing their homes won’t happen some time down the track.

Adding more drama to my job is the US President who right now has problems with Iran, Russia, China, Venezuela, US banks credit card interest rates, Israel, Palestine and let’s not forget Greenland and his central bank boss, Jerome Powell!

On whether a market crash would KO us into a Great Depression, the AFR carries a story today on the AI bubble and an expected market fallout by John Plender of The Financial Times.

While I reckon his story was stimulated by Sorkin’s 1929 book, this is what he concluded on whether an AI bubble bursting would lead to a Great Depression: “So yes, there could be a 1929-style crash. But once again, as after the dotcom burst and the 2007-09 financial crisis, the central bankers will be putting a safety net under markets. And the US will continue to act as the ever constant borrower of first and last resort in the global economy. So, this rerun of the Roaring Twenties will not be followed by a Great Depression.”

I agree. While I’m betting 2026 will be OK for stock players, in 2027 there could be good reason to go very defensive to protect the good profits we have pocketed over the past three to four years. Remember, while the average US bull market lasts 4.3 years, the longest was 12 years. And in recent times they’ve lasted longer than in the past.

How old is the current bull market? I started on 12 October 2022 so it’s only three and a bit year’s old. That was a revelation that hosed down my financial fears.

That said, when I get scared about an AI bubble or a Trump curve ball, you’ll be the first to know. And after reading Sorkin’s book, I bet my wife will be looking for parallels between then and now! I did hear her put in a request for Pulitzer Prize-winning author Liaquat Ahamed’s Lords of Finance, so watch this space!