US president-elect Donald J Trump announces the following based on "Project 2025: presidential transition project" hard right political playbook

On 8 November 2024 US president-elect and convicted fraudster, 78 year-old Donald John Trump made the following announcement ushering in an authoritarian state, headed by a president intent on revenge against those he perceives as his enemies and retribution for a long list of delusional grievances.

 

Donald Trump has just released his plan to "demolish the deep state."

Unglued Project 2025 stuff.

Buckle up, folks. pic.twitter.com/AniimjUcbG

— Art Candee 🍿🥤 (@ArtCandee) November 8, 2024

 The Heritage Foundation and the Project 2025 Advisory Board - along with Donald Trump himself - have repeatedly denied any association with each other. Unfortunately these denials have proved to be untruths.

Project 2025 922-page 180-Day Playbook at

https://www.project2025.org/playbook/ 

and

https://static.project2025.org/2025_MandateForLeadership_FULL.pdf   

Australia's initial reaction to Trump's election win is a mixture of caution and dread....

Financial Review, 7 November 2024:

President-elect Donald Trump will likely be a unilateralist in his dealings with Australia and the rest of the world, neither a pre-World War Two isolationist nor the post-war global policeman.

Trump’s highly transactional view of life means he will take America in and out of world affairs as and when it suits his mercurial personality. He will approach each international relationship through the prism of what is in it for him. For Trump, the geopolitical is personal.....

The immediate risk for Australia is Trump’s flagship policy of tariffs on imports, which threaten a 60 per cent charge on Chinese goods and up to 20 per cent on all others. Robert Lighthizer, his hawkish former trade representative who is tipped to return to the new administration, doesn’t believe that free trade works. He argues that America did not lose its microchip industry because of a lack of comparative advantage, but because of the subsidies and industry policies of other countries. He also thinks it has been China’s choice not to open more of its domestic market to better balance its trade with the US.

Australia is a small open economy highly exposed to the ripple effects of an all-out US-China trade war. ANU economist Warwick McKibbin says that because China takes a massive 47 per cent of Australia’s goods exports, the collateral damage to Australia from a Sino-US tariff fight could mean a hit on the economy of 0.3 per cent of GDP a year by 2035. In America, the proposed tariffs would rekindle inflation, forcing up interest rates and the cost of funding immense US debts. That will keep upward pressure on global interest rates too, making it harder for the Reserve Bank to cut rates here. On the other hand, China may have kept fiscal stimulus plans in reserve for a Trump trade clash, from which Australia would gain.

Australia will watch closely how Trump treats wider US alliances in the Pacific.

The mutual harm of a trade war might pave the way to negotiating instead. Trump might be content to use the threat of tariffs to push for concessions from trade partners. And if tariffs were to be implemented, the heavy cost to US consumers and the damage to US exporters hit by retaliatory tariffs could see Congress itself water them down to more selective targeting. Australia could blunt some of the impact of any tariff changes by successfully negotiating reductions as it did for steel and aluminium exports during the first Trump administration.

Australia will watch closely how Trump treats wider US alliances in the Pacific, the so-called “lattice work” of partnerships built up by the Biden administration connecting Japan, South Korea, the Philippines, India, and Australia.

Trump has a much more insular vision of American power, viewing long-term commitments to international alliances as liabilities the US could do without. Yet if he leaves a strategic vacuum by quitting the region then China, Russia and others would move fast to fill it. And it would not be long before even a more self-contained Trump America began feeling the pressure of an expanding China. Trump would find that turning his back on allies was a more costly transaction than he thought.

The Sydney Morning Herald, 7 November 2024:

Donald Trump’s policy agenda could precipitate a global financial crisis and fuel inflation, one of the world’s leading analysts has warned, with fears Australians will suffer higher interest rates and a $36 billion hit to the domestic economy.

As the Reserve Bank conceded the incoming US president’s debt-fuelled policies would put upward pressure on global interest rates, former bank board member Warwick McKibbin likened the impact of Trump’s plans on Australia to being in the middle of a line of fireworks as they exploded on New Year’s Eve.

Trump’s plans also pose enormous political problems for Prime Minister Anthony Albanese and Liberal leader Peter Dutton in the lead-up to next year’s election, with analysis suggesting even winning some concessions from the Trump administration would not prevent ongoing turmoil for Australia.

Interest rates globally have climbed since Trump’s victory over US Vice President Kamala Harris, fuelled by expectations his plans for tax cuts, tariffs and the deportation of millions of undocumented workers will increase the size of American government debt.

The Committee for a Responsible Federal Budget, an independent US organisation, estimates the Trump agenda would increase debt by $US7.8 trillion ($12 trillion) by 2035, taking it to an unprecedented 143 per cent of GDP.

Following Wednesday’s election results, the Australian dollar – among many currencies – lost value against the US dollar as investors bet a further lift in American government debt would require higher interest rates.

More speculative investments such as cryptocurrencies also enjoyed a surge in support. The price of bitcoin lifted from $104,500 early on Wednesday to a record high of $116,000 in the 21 hours after Trump’s re-election became clear.

Giving evidence to a Senate hearing in Canberra, Reserve Bank assistant governor Christopher Kent said Trump’s policies such as tax cuts would probably mean higher US long-term interest rates and inflation, which would flow through to the global economy.

“Because the US is such an important source of funding, and the demand by the government for borrowing is substantial, that’ll have upward effects on global interest rates,” he said.

Kent said Trump’s protectionist tariff policies would slow growth around the world.....

McKibbin said Trump’s tariff plan, which includes imposts of 10 to 20 per cent on Australian goods and 60 per cent on those from China, would directly hit the local economy while undermining global trade.

But the broader elements of Trump’s agenda, especially possible interference in the setting of American interest rates, could deliver the world another financial crisis.

“It’s like standing on Sydney Harbour Bridge when they set off the fireworks – you don’t want to be on it. There are fuses everywhere and they are just going to ignite,” McKibbin said.

Nationwide News, 7 October 2024:

The Reserve Bank claims there could be an “adverse effect” on Australia if incoming US President Donald Trump were to impose tariffs of up to 60 per cent on China.

During senate estimates on Wednesday, RBA assistant governor Christopher Kent said it was a “big concern“ whether Mr Trump follows through on the levies of Chinese-made goods, but added the full-effect was still unclear.

The levies would be higher than the 7.5 to 25 per cent implemented during his first time.

They are considered part of a broader suite of measures to boost the US economy, which also includes broad tariff increases on all imports of up to 10 per cent, cutting taxes, slashing immigration, and deregulation.

“The big concern is large tariffs on China, which may have an adverse effect on us,” he said.

“So is it right to characterise the RBA position as of this morning as unclear in terms of what the United States election outcome means for inflation outlooks.”

Speaking more broadly, he said Mr Trump’s promised tariffs would likely ”push up” the US dollar and create less demand by the US for goods produced in other markets.

“But it means less demand by the US for global goods, so that’s sort of a negative for growth elsewhere,” he said.....

UPDATE

Trump with the bit between his teeth on 15 December 2022.....

DEVELOPING: 🚨 President-Elect Donald Trump Outlines Plan to “Shatter” Censorship Regime, Restore Free Speech 🚨

President-Elect Donald Trump has released a comprehensive strategy to dismantle what he calls the "left-wing censorship regime," promising swift action on his first… pic.twitter.com/fjwJViKabz

— MiddleMaga.com (@StucknDaMid) November 8, 2024

Tweet of the Week

 

All we wanted for Christmas was a new Reserve Bank Governor. Be careful what you wish for! pic.twitter.com/l9rKtElfiy

— john shakespeare (@johnshakespeare) November 8, 2023

 

AUSTRALIAN SOCIETY STATE OF PLAY: Interest rates and cost of living - there is no good news in November 2023

Reserve Bank Logo

The Reserve Bank of Australia as one of its monetary policy decision tools employs a cash rate target.

In the Reserve Bank's own words:

The cash rate is the interest rate that banks pay to borrow funds from other banks in the money market overnight. It influences all other interest rates, including mortgage and deposit rates.

In technical terms, it is the interest rate on unsecured overnight loans between banks (loans banks use to manage their liquidity). It is our operational target for the implementation of monetary policy.

The Bank's inflation target is; to keep annual consumer price inflation at between 2 and 3 per cent, on average, over time.

On 7 September 2016 the Australian Reserve Bank cash rate target stood at 1.50% and it remained unchanged for over two year and seven months, until it fell by 25 basis points to 1.25% on 5 June 2019.

The cash rate target continued to fall the next five months until it reached 0.10% on 4 November 2020 and remained unchanged until 4 May 2022 when it rose to 0.35%.

Since then the monthly cash rate target announcements began to tread water on 5 July 2023 at 4.10%.

Sadly, on 8 November 2023 the cash rate target again rose by 25 basis points to 4.35% - the 13th rate hike since May 2022.

The Reserve Bank's next monthly target announcement is due on Tuesday, 5 December 2023.

As for the Reserve Bank's inflation target of keeping consumer price inflation at between 2 and 3 per cent, this target range had been met consistently for the ten and a half years up to December Quarter 2021 and ever since been consistently exceeded. Peaking at 7.8% in December Quarter 2022 before gradually falling to 5.4% in September Quarter 2023 with a monthly indicator of 5.6%.

I suggest that readers do not anticipate any interest rate relief this coming December. Nor expect any significant fall in the Living Cost Index or Consumer Price Index as the country enters 2024.

If The Guardian article on the latest Essential Research poll is correct, it is likely that the more than half of all Australian voters who reportedly are struggling financially will read the following with a jaundiced eye.......

Reserve Bank of Australia, MediaRelease, 7 November 2023:

Statement by Michele Bullock, Governor: Monetary Policy Decision Number 2023-30

Date 7 November 2023

At its meeting today, the Board decided to raise the cash rate target by 25 basis points to 4.35 per cent. It also increased the interest rate paid on Exchange Settlement balances by 25 basis points to 4.25 per cent.

Inflation in Australia has passed its peak but is still too high and is proving more persistent than expected a few months ago. The latest reading on CPI inflation indicates that while goods price inflation has eased further, the prices of many services are continuing to rise briskly. While the central forecast is for CPI inflation to continue to decline, progress looks to be slower than earlier expected. CPI inflation is now expected to be around 3½ per cent by the end of 2024 and at the top of the target range of 2 to 3 per cent by the end of 2025. The Board judged an increase in interest rates was warranted today to be more assured that inflation would return to target in a reasonable timeframe.

The Board had held interest rates steady since June following an increase of 4 percentage points since May last year. It had judged that higher interest rates were working to establish a more sustainable balance between supply and demand in the economy. Furthermore, it had noted that the impact of the more recent rate rises would continue to flow through the economy. It had therefore decided that it was appropriate to hold rates steady to provide time to assess the impact of the increase in interest rates so far. In particular, the Board had indicated that it would be paying close attention to developments in the global economy, trends in household spending, and the outlook for inflation and the labour market.

Since its August meeting, the Board has received updated information on inflation, the labour market, economic activity and the revised set of forecasts. The weight of this information suggests that the risk of inflation remaining higher for longer has increased. While the economy is experiencing a period of below-trend growth, it has been stronger than expected over the first half of the year. Underlying inflation was higher than expected at the time of the August forecasts, including across a broad range of services. Conditions in the labour market have eased but they remain tight. Housing prices are continuing to rise across the country.

At the same time, high inflation is weighing on people’s real incomes and household consumption growth is weak, as is dwelling investment. Given that the economy is forecast to grow below trend, employment is expected to grow slower than the labour force and the unemployment rate is expected to rise gradually to around 4¼ per cent. This is a more moderate increase than previously forecast. Wages growth has picked up over the past year but is still consistent with the inflation target, provided that productivity growth picks up.

Returning inflation to target within a reasonable timeframe remains the Board’s priority. High inflation makes life difficult for everyone and damages the functioning of the economy. It erodes the value of savings, hurts household budgets, makes it harder for businesses to plan and invest, and worsens income inequality. And if high inflation were to become entrenched in people’s expectations, it would be much more costly to reduce later, involving even higher interest rates and a larger rise in unemployment. To date, medium-term inflation expectations have been consistent with the inflation target and it is important that this remains the case.

There are still significant uncertainties around the outlook. Services price inflation has been surprisingly persistent overseas and the same could occur in Australia. There are uncertainties regarding the lags in the effect of monetary policy and how firms’ pricing decisions and wages will respond to the slower growth in the economy at a time when the labour market remains tight. The outlook for household consumption also remains uncertain, with many households experiencing a painful squeeze on their finances, while some are benefiting from rising housing prices, substantial savings buffers and higher interest income. And globally, there remains a high level of uncertainty around the outlook for the Chinese economy and the implications of the conflicts abroad.

Whether further tightening of monetary policy is required to ensure that inflation returns to target in a reasonable timeframe will depend upon the data and the evolving assessment of risks. In making its decisions, the Board will continue to pay close attention to developments in the global economy, trends in domestic demand, and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that outcome.

Everyone is hoping that the Reserve Bank of Australia continues to restrain the urge to raise interest rates today

IMAGE: Depositphotos

By late August 2023 mainstream media was reporting that in the 2022-23 financial year supermarket giants Coles and Woolworths recorded profits in excess of $1 billion representing around a 5% increase on the previous year - withy Woolworth’s recording a nearly 20% rise in grocery sector earnings while Coles recorded a 2.9% rise.

These grocery earnings being an almost direct cash transfer from dwindling household piggy banks to supermarket chain bank accounts.

In August the major banks were also reporting fat financial year profits, with the Commonwealth Bank coming in with a personal record breaking best of $10.2 billion in 2022-23.

None of the big banks being slow in coming forward to pass on increasing Reserve Bank of Australia cash rates onto customers, including those with home mortgages.

According to the ABS latest monthly consumer price index indicator, rent prices increased 7.6% in the twelve months to July 2023, up from 7.3% in June, reflecting strong demand for rental properties and tight rental markets.

Electricity prices rose 15.7% in the twelve months to July 2023, reflecting annual price reviews in July.

Annual prices for food and non-alcoholic beverages rose 5.6%, down from the rise of 7.0% in June, with dairy and related products rising12.7% and bread & cereal products rising 9.9% even if fruit & vegetables fell by -2.9%.

The actual pain of cost of living pressures are of course rarely mentioned by the Reserve Bank of Australia or the statisticians.

Australian Bureau of Statistics (ABS), media release, 4 September 2023:

Household spending was 0.7 per cent lower when compared to July last year, according to figures released today by the Australian Bureau of Statistics (ABS).

Robert Ewing, ABS head of business statistics, said households have curbed their spending over the past 12 months amid higher interest rates and inflation.

“This is the first time since February 2021 that the spending indicator has fallen.

“Spending on discretionary goods and services was down for the fourth straight month. It fell 3.3 per cent over the year, as households adapt to cost of living pressures.

“Non-discretionary spending rose 1.7 per cent, which is the lowest growth rate since early 2021.”

The Sydney Morning Herald, 4 September 2023:

The largest fall in spending on goods including clothing, footwear and home furnishings since the start of the Delta wave of the pandemic has bolstered the case for the Reserve Bank to hold interest rates steady for a third consecutive month.

Outgoing RBA governor Philip Lowe will on Tuesday helm his last meeting of the board, which is widely expected by economists to keep the official cash rate at 4.1 per cent as the economy continues to show signs of slowing and inflation pressures ease.

Because someone has to say it: By Dec 2023 it's likely converging & merging weather and climatic conditions will see not only cost of fruit, vege, eggs, dairy products, meat & basic foodstuffs rising - it will see availability & supply become issue to varying degrees across Oz.

— no_filter_Yamba (@no_filter_Yamba) September 1, 2023

 

"Eat The Rich" is an amusing conversational tag. But for how long?

“For most Australians, income is the most important resource they have to meet their living costs. However, reserves of wealth can be drawn upon to maintain living standards in periods of reduced income or substantial unexpected expenses. Considering income and wealth together helps to better understand the economic wellbeing or vulnerability of households.”

[Australian Bureau Of Statistics, Household Income and Wealth, Australia, Reference period: 2019-20]

Given the grumbling coming from the opera boxes and dress circle seats in the Australian economy if it is suggested that those on low to middle incomes shouldn’t be solely responsible for fighting inflation by way of wage suppression, ever rising cost of living & below poverty line unemployment benefits, perhaps it’s time to remember some of the cream within the Top 1% and how richly they live in an Australian population of est. 26,510,186 men, women and children spread out across this country. [ABS, Population Clock, 4 June 2023 at 8:15am]

Forbes, Australia’s 50 Richest 2023, 15 February 2023:

NAME          NET WORTH          INDUSTRY

1. Gina Rinehart   $30.6 B         Metals & Mining

2. Andrew Forrest   $21.7 B      Metals & Mining

3. Harry Triguboff     $15.5 B    Real Estate

4. Bianca Rinehart & siblings   $12.5 B   Metals & Mining

5. Anthony Pratt   $11.6 B        Manufacturing

6. Mike Cannon-Brookes  $10.8 B Technology

7. Scott Farquhar   $10.6 B      Technology

8. Cliff Obrecht & Melanie Perkins   $7.2 B Technology

9. Frank Lowy   $6 B                 Finance & Investments

10. Richard White   $5.4 B        Technology

11. John, Alan & Bruce Wilson   $5.1 B Fashion & Retail

12. Kerry Stokes   $4.2 B          Diversified

13. John Gandel   $3.5 B          Real Estate

14. Lindsay Fox   $3.4 B           Logistics

15. Jack Cowin   $3.35 B          Food & Beverage

16. Michael Hintze   $3.2 B       Finance & Investments

17. James Packer   $2.8 B        Finance & Investments

18. Lang Walker   $2.7 B           Real Estate

19. Fiona Geminder   $2.6 B     Manufacturing

20. Brett Blundy   $2.45 B         Fashion & Retail

21. Solomon Lew   $2.3 B         Fashion & Retail

22. Bob Ell   $2.25 B                  Real Estate

23. Len Ainsworth & family   $2.2 B Gambling & Casinos

24. Heloise Pratt   $2.15 B        Manufacturing

25. Clive Palmer   $2.1 B           Metals & Mining

26. Gerry Harvey   $2.05 B        Fashion & Retail

27. Kie Chie Wong   $2 B          Metals & Mining

28. Hains family   $1.95 B         Finance & Investments

29. Cameron Adams   $1.8 B    Technology

30. Chris Wallin   $1.75 B         Energy

31. Terry Snow   $1.61 B           Real Estate

32. Bruce Mathieson   $1.6 B   Real Estate

33. Chris Ellison   $1.59 B        Metals & Mining

34. Angela Bennett   $1.55 B    Metals & Mining

35. Gretel Packer   $1.54 B       Finance & Investments

36. David Teoh   $1.53 B           Telecom

37. Nigel Austin   $1.5 B           Fashion & Retail

38. Tony & Ron Perich   $1.42 B   Real Estate

39. John Van Lieshout   $1.41 B   Real Estate

40. Anthony Hall   $1.4 B          Technology

41. Jack Gance & family   $1.35 B   Fashion & Retail

42. Mario Verrocchi & family   $1.34 B   Fashion & Retail

43. Sam Hupert $  1.3 B           Technology

44. Sam Tarascio   $1.25 B       Real Estate

45. Sam Kennard & siblings   $1.2 B  Real Estate

46. Michael Heine   $1.19 B      Finance & Investments

47. Manny Stul   $1.18 B           Manufacturing

48. Mark Creasy    $1.02 B        Metals & Mining

49. Alan Rydge    $1 B              Media & Entertainment

50. Kerr Neilson    $960 M        Finance & Investments

Globally only Monaco and Switzerland have higher individual net wealth than Australia. In this country in 2022 the Top 1% had individual wealth beginning at $5.5 million to >$30 billion, yet before it was driven from office the Morrison Coalition Government locked in an overly generous permanent tax cut for the wealthy in our society. Along with a negative gearing regime for property investment which is concentrating residential property ownership in the hands of richer individuals and families.

While the bottom wealth percentiles - including the homeless, unemployed, working age poor & elderly without assets or savings - recognising the taxation rate/negative gearing sleight-of-hand involved are left wondering how long they can manage to put a roof over their heads and food on the table now and into the foreseeable future.

IMAGE: Twitter via @MaggieDaWitch
4 June 2023

Cartoons of the Week

 

David Pope

Megan Herbert

John Shakespeare

RBA Governor Lowe set to meet with Suicide Prevention Australia after indications there is a surge in people reporting elevated distress over cost-of-living pressures

 

The 10th consecutive cash rate rise announced by the Reserve Bank of Australia has low income and middle income Australia reeling.

Post, a daily newsletter from The Saturday Paper, from the pen of the Emails Editor, 8 March 2023, excerpt:

RBA governor Philip Lowe has announced a record 10th consecutive interest rate rise, but signalled the run may be coming to an end amid concerns the hikes are hurting wellbeing.

What we know:

• The RBA increased rates by 25 basis points at the board's March meeting, to 3.6% — the highest interest rate since May 2012 (Nine);

• Mortgage holders with a balance of $750,000 will pay an extra $121 a month — and are now likely paying about $18,900 more in repayments annually since May (realestate.com.au);

• Lowe’s language softened on the prospect of future rate rises however, with economists suggesting there might only be one or two left (AFR $);

• He is set to meet representatives of Suicide Prevention Australia, the peak body that has raised the alarm about a surge in people reporting elevated distress over cost-of-living pressures (The Age);

• Research by Suicide Prevention Australia, given to Lowe late last week, shows 46% of people are reporting high levels of cost-of-living distress;

• There has also been a lift in the number of people reporting serious thoughts of suicide, which reached 16%, with sharp increases in NSW and Victoria;

• Lowe will give further clues as to the RBA’s plans in a speech about inflation and recent economic data to a business conference today (Canberra Times);

• The RBA governor has previously warned of a wage-price spiral driving inflation, though wage growth has been slowing, while corporate profits are surging (The Saturday Paper).

BACKGROUND

Reserve Bank of Australia

Media Release

Statement by Philip Lowe, Governor: Monetary Policy Decision

Number 2023-07

Date 7 March 2023

At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 3.60 per cent. It also increased the interest rate on Exchange Settlement balances by 25 basis points to 3.50 per cent.

Global inflation remains very high. In headline terms it is moderating, although services price inflation remains elevated in many economies. It will be some time before inflation is back to target rates. The outlook for the global economy remains subdued, with below average growth expected this year and next.

The monthly CPI indicator suggests that inflation has peaked in Australia. Goods price inflation is expected to moderate over the months ahead due to both global developments and softer demand in Australia. Services price inflation remains high, with strong demand for some services over the summer. Rents are increasing at the fastest rate in some years, with vacancy rates low in many parts of the country. The central forecast is for inflation to decline this year and next, to be around 3 per cent in mid-2025. Medium-term inflation expectations remain well anchored, and it is important that this remains the case.

Growth in the Australian economy has slowed, with GDP increasing by 0.5 per cent in the December quarter and 2.7 per cent over the year. Growth over the next couple of years is expected to be below trend. Household consumption growth has slowed due to the tighter financial conditions and the outlook for housing construction has softened. In contrast, the outlook for business investment remains positive, with many businesses operating at a very high level of capacity utilisation.

The labour market remains very tight, although conditions have eased a little. The unemployment rate remains at close to a 50-year low. Employment fell in January, but this partly reflects changing seasonal patterns in labour hiring. Many firms continue to experience difficulty hiring workers, although some report a recent easing in labour shortages. As economic growth slows, unemployment is expected to increase.

Wages growth is continuing to pick up in response to the tight labour market and higher inflation. At the aggregate level, wages growth is still consistent with the inflation target and recent data suggest a lower risk of a cycle in which prices and wages chase one another. The Board, however, remains alert to the risk of a prices-wages spiral, given the limited spare capacity in the economy and the historically low rate of unemployment. Accordingly, it will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms.

The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments. There is uncertainty around the timing and extent of the slowdown in household spending. Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living. Household balance sheets are also being affected by the decline in housing prices. Another source of uncertainty is how the global economy responds to the large and rapid increase in interest rates around the world. These uncertainties mean that there are a range of potential scenarios for the Australian economy.

The Board’s priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later, involving even higher interest rates and a larger rise in unemployment. The Board is seeking to return inflation to the 2–3 per cent target range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.

The Board expects that further tightening of monetary policy will be needed to ensure that inflation returns to target and that this period of high inflation is only temporary. In assessing when and how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.

Cartoons of the Week

 

Matt Golding

Cathy Wilcox

Fiona Katauskas

Jon Kudelka

Cartoon of the Week

David Rowe

Reserve Bank of Australia raises the interest rate yet again - promising more of the same in coming months. Recession worries begin to emerge

 

On the 7 February 2023 the Reserve Bank of Australia (RBA) increased the official cash rate by 0.25%. The current official cash rate as determined the RBA is now 3.35%.

As we reach the ninth official cash rate rise since 4 May 2022, the Reserve Bank Governor’s words set out below are less and less reassuring.

According to the Australian Stock Exchange (ASX) RBA Rate Tracker:

As at 8 February, the ASX 30 Day Interbank Cash Rate Futures March 2023 contract was trading at 96.525, indicating a 65% expectation of an interest rate increase to 3.60% at the next RBA Board meeting.

The next RBA Board meeting and Official Cash Rate announcement will be on the 7th March 2023.

Reserve Bank of Australia

Media Release

Statement by Philip Lowe, Governor: Monetary Policy Decision

Number 2023-04

Date 7 February 2023

At its meeting today, the Board decided to increase the cash rate target by 25 basis points to 3.35 per cent. It also increased the interest rate on Exchange Settlement balances by 25 basis points to 3.25 per cent.

Global inflation remains very high. It is, however, moderating in response to lower energy prices, the resolution of supply-chain problems and the tightening of monetary policy. It will be some time, though, before inflation is back to target rates. The outlook for the global economy remains subdued, with below average growth expected this year and next.

In Australia, CPI inflation over the year to the December quarter was 7.8 per cent, the highest since 1990. In underlying terms, inflation was 6.9 per cent, which was higher than expected. Global factors explain much of this high inflation, but strong domestic demand is adding to the inflationary pressures in a number of areas of the economy.

Inflation is expected to decline this year due to both global factors and slower growth in domestic demand. The central forecast is for CPI inflation to decline to 4¾ per cent this year and to around 3 per cent by mid-2025. Medium-term inflation expectations remain well anchored, and it is important that this remains the case.

The Australian economy grew strongly over 2022. The central forecast is little changed from three months ago, with GDP growth expected to slow to around 1½ per cent over 2023 and 2024. The recovery in spending on services following the lifting of COVID restrictions has largely run its course and the tighter financial conditions will constrain spending more broadly.

The labour market remains very tight. The unemployment rate has been steady at around 3½ per cent over recent months, the lowest rate since 1974. Job vacancies and job ads are both at very high levels, but have declined a little recently. Many firms continue to experience difficulty hiring workers, although some report a recent easing in labour shortages. As economic growth slows, unemployment is expected to increase. The central forecast is for the unemployment rate to increase to 3¾ per cent by the end of this year and 4½ per cent by mid-2025.

Wages growth is continuing to pick up from the low rates of recent years and a further pick-up is expected due to the tight labour market and higher inflation. Given the importance of avoiding a prices-wages spiral, the Board will continue to pay close attention to both the evolution of labour costs and the price-setting behaviour of firms in the period ahead.

The Board recognises that monetary policy operates with a lag and that the full effect of the cumulative increase in interest rates is yet to be felt in mortgage payments. There is uncertainty around the timing and extent of the expected slowdown in household spending. Some households have substantial savings buffers, but others are experiencing a painful squeeze on their budgets due to higher interest rates and the increase in the cost of living. Household balance sheets are also being affected by the decline in housing prices. Another source of uncertainty is how the global economy responds to the large and rapid increase in interest rates around the world. These uncertainties mean that there are a range of potential scenarios for the Australian economy.

The Board’s priority is to return inflation to target. High inflation makes life difficult for people and damages the functioning of the economy. And if high inflation were to become entrenched in people’s expectations, it would be very costly to reduce later. The Board is seeking to return inflation to the 2–3 per cent range while keeping the economy on an even keel, but the path to achieving a soft landing remains a narrow one.

The Board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary. In assessing how much further interest rates need to increase, the Board will be paying close attention to developments in the global economy, trends in household spending and the outlook for inflation and the labour market. The Board remains resolute in its determination to return inflation to target and will do what is necessary to achieve that.

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The Sydney Morning Herald, 9 February 2023: 

There is a better than 50-50 chance Australia could fall into recession due to the Reserve Bank’s aggressive increases in interest rates, economists believe, as a growing group of Labor MPs suggest the seven-year term of RBA governor Philip Lowe should not be extended. 

Macroeconomics Advisory chief economist Stephen Anthony said the chance of a recession next year could be as high as 70 per cent due to the impact of the RBA’s high interest rates, coupled with a slowdown in key markets such as China.

Pressure on Lowe has intensified after the RBA pushed interest rates to a 10-year high this week and signalling more than one further increase in coming months. Lowe, whose seven-year term ends on September 17, had signalled in late 2021 that rates would remain on hold until 2024. 

The previous two governors, Glenn Stevens and Ian Macfarlane, both had their terms extended by three years. But with a sweeping review of the central bank due to be finalised and handed to Treasurer Jim Chalmers in late March, there is a growing expectation that Lowe will not stay on beyond September. 

Within the government, there are now open questions about Lowe’s long-term tenure at the bank.....