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If former Reserve Bank governor Philip Lowe will never live down his notorious statement that we shouldn’t expect interest rates to rise until 2024, what to make of his successor, Michele Bullock, and the RBA board, and their extraordinary statement yesterday trying to explain why, despite clobbering the economy into a coma, they’re not prepared to cut rates?
Growth in output has been weak. Past declines in real disposable incomes and the ongoing effect of restrictive financial conditions continue to weigh on household consumption, particularly discretionary consumption. However, growth in aggregate consumer demand, which includes spending by temporary residents such as students and tourists, has remained more resilient.
Yes, that’s the board of Australia’s central bank effectively blaming tourists and foreign students for propping up consumer demand in Australia, effectively undermining the RBA’s efforts to smash households and thus delaying any interest rate cuts.
Those bloody foreigners, eh?
It’s a shocking, xenophobic statement — and wrong. Who’s really propping up consumer demand? Try the one third of home-owning households without a mortgage — usually baby boomers and gen Xers — who have increased spending more than three times the rate of young people in the face of higher inflation and interest rates.
You can bet the RBA wouldn’t dare have a crack at rich, asset-owning seniors who are untroubled by interest rate rises and actually benefit from higher interest rates. But foreigners are, clearly, fair game — even if their spending helps prop up struggling regional economies, or their labour helps reduce skills shortages and labour market pressures (supposedly one of the reasons the RBA doesn’t want to cut rates yet).
Do Bullock and the board want tourism capped, along with Labor’s much-maligned foreign student cap? Do we need to send Scott Morrison back to Tourism Australia to make sure its campaigns are duds?
At least Lowe had an excuse — a pandemic, and his perceived need to reassure Australians — for his intemperate expectations-management. What’s Bullock and the board’s excuse for peddling economic xenophobia?
It looks a lot like an inexperienced RBA leadership, rigid in its doctrinaire belief in the need to punish households, casting about for any excuse to maintain a stifling monetary policy.
Compare and contrast the far more experienced US Federal Reserve. It’s about to reveal its second rate cut — expected to be 0.25% after the 0.50% cut six weeks ago — despite the US inflation measure remaining above its 2% target level for the past three months.
The core Personal Consumption Expenditure data released at the end of each month came in at 2.7% in September, unchanged from August and July. That’s despite the headline CPI rate sinking to 2.1% from 2.3% in August. But the Fed and chair Jay Powell have made it clear they have the confidence to cut rates.
Both the US and Australian economies have strong jobs markets, with unemployment at 4.1% in both countries though the US still has more vacant jobs than unemployment, unlike Australia. But US GDP — 2.8% in the third quarter — is much stronger than Australias. We also have a trade surplus, unlike the US, and we’ve just had two budget surpluses in a row, and a deficit this year that’s likely to be below 1% of GDP — compared to a deficit this year of around 7% of GDP in the US.
Despite that, the Fed is still willing to cut rates. Meantime, the RBA is cutting back its economy forecasts and scrambling for someone to pin the blame on for its ideological refusal to cut rates and its obsession with pandering to media and market inflation hawks.
Whatever his faults, Lowe never stooped to such levels. The RBA under Bullock doesn’t just look out of touch. It looks desperate.