Following the better-than-expected jobs report yesterday, it looks like we’re being haunted by Goldilocks! It means we can’t be confident that Dr Phil and his merry team of board members at the RBA are done with their interest rate rise torture.

The Reserve Bank and Federal Treasury historically work together to create the ideal or Goldilocks economy, with low inflation and low unemployment. As Goldie herself says in the Three Bears tale, “It’s just right!”

Unfortunately, we can’t get the Goldilocks result because one part of the story i.e., low unemployment isn’t rising to help bring inflation down. That’s why the RBA has given us 10 interest rate rises. While inflation is falling, the fear is that if unemployment doesn’t rise sufficiently, inflation will remain sticky at say 5%, when the RBA target is 2% to 3%. Right now it’s 6.8%.

If we saw yesterday’s unemployment number rise from the near 50-year low of 3.5% to say 3.7% or higher, I’d be writing now that Dr Phil will keep interest rates on hold. However, after that jobs result for March, I have to say that we could see another rate rise next month.

“The labour market has held up well, despite the slowing in GDP growth in late 2022 and the increase to interest rates over the past year,” says AMP economist Diana Mousina. “Clearly the labour market is still in a tight position. The leading indicators of employment (job vacancies, advertisements and hiring intentions) indicate some downside (but not a sharp slowing) to employment growth, which should see the unemployment rate rise slowly towards 4% over 2023.”

NAB is expecting more interest rate rises and property prices will keep falling, albeit only by a small amount, despite a recent kick up in what sellers have been getting for their properties. The bank’s chief economist Alan Oster has pulled back his forecast of a 20% fall in house prices (peak to trough) to only 12%. And though he sees more rate rises ahead, he tips rate cuts in 2024.

Right now, a strong rental market is helping slow down the house price fall and also the buying of property by foreign purchasers has grown nationally to 7.9% in the first quarter of this year. In NSW it’s 16.2%. Ben Wilmot of The Australian reports that we haven’t seen numbers like that since 2015.

The big watch for Dr Phil will be wages. A strong labour market could deliver higher than wanted wages for the RBA and that could make them keep raising rates. “The job market may be strong but the key factor is wages,” the CBA economics team says. “To date, we haven’t seen evidence of a wage-price spiral, but that is the area to watch. Surveys suggest that wage pressures are contained, but it is important to note that job markets are strong across states, territories, cities and regional areas.”

Interestingly, if we can get inflation to keep falling and unemployment doesn’t surge, we could end up with a Goldilocks economy and Dr Phil could go from being an interest rate predicter nincompoop to an economic genius!