The governor’s failure to give firm guidance on interest rates in her press conference reflects genuine uncertainty about the end of the inflation fight.
Already a subscriber?Reserve Bank governor Michele Bullock won’t give firm guidance on the future course of interest rates and inflation. That’s natural for an institution that was scorched by a forward guidance policy on the cash rate during the pandemic that turned out to be too loose and had to be abandoned, costing her predecessor a further term. But it also reflects genuine uncertainty.
That’s why Ms Bullock at least makes it plain that the war on inflation is not yet over. The base case is that the next move on the 4.35 per cent cash rate will be to cut. But the governor will neither rule that in, nor rule out that more rate increases might come instead if things don’t go to plan. She suggests that the Fair Work Commission’s award of 14 per cent pay rises to aged care workers and 7 per cent to cleaners and cooks, on a formula of supposedly unrecognised “work value” that doesn’t include productivity offsets, should not “make a measurable difference”. But the central bank only includes past FWC minimum wage cases in its modelling, and it can’t be sure of what the spillover effects will be in a job market that is still tight.
told The Australian Financial Review Business Summit last week that excessive inflationary stimulus was still coursing through a strong US economy and financial markets like “heroin” and the US Fed’s credibility was on the line if it prematurely eased.
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