Michael Pascoe is a multi-decade RBA watcher. He’s feeling sorry for Governor Michele Bullock now having to face the media after every board meeting.
It’s only my guess, but I’d bet the thing Governor Bullock most regrets about her predecessor is his swallowing whole Jim Chalmers’ review of the bank that came up with the idea of holding a media conference after every board meeting.
Of course it is in the media’s interest to have the Governor taking questions, giving us stuff with which to fill otherwise blank spaces and it’s supposed to be best practice for the central bank to “communicate” with the public. But the reality is that the exercise is mostly pointless.
Some of the questions are naïve in search of a simplistic
five-second grab for the “mums and dads”,
others are politically loaded, some are trying to be too smart by half pushing a pre-ordained opinion. I know, I’ve asked some of them myself.
Rates steady!
On days like Tuesday though, I can only feel sorry for the Governor. All that the board could say about the decision to leave rates steady at the meeting was said in the announcement released at 2.30 pm.
Quite simply, the RBA doesn’t know where inflation is going next. Nobody does. Nobody could, given the multiple wheels in motion and the impossibility of predicting human sentiment.
Having lifted rates at each of the three previous meetings to what the bank thinks is a mildly contractionary level, seeing the unemployment rate jump, knowing wages show no sign of any inflationary spiral, hoping that last month’s baseline assumptions about oil are holding with the black stuff’s price down to where it was when Trump’s war started, wondering how sharp the (negative) wealth effect of falling residential real estate prices will be and yet still having inflation above target adds up to meaning there is no way the board could have confidence to move rates, to do anything other than pause to see what happens next.
The Board’s statement sort of said all that. It chose to conclude with the most obvious and tired old line from the RBA’s stock of cliches:
“Monetary policy is well placed to respond to developments and the Board is focused on its mandate to deliver price stability and full employment. It will do what it considers necessary to achieve that outcome, including increasing the cash rate target further if required.”
This is in the “no shit Sherlock” category. Translation: We’ll do what we have to do when we think we know what we’re doing.
Whatever it takes
Which is what the RBA is there to do. Few things are more bemusing for this veteran hack than reading stories that report as if it was news that the bank is prepared to do whatever it considers necessary. Pope’s religion, where bears defecate, sun rises etc.
There is a line of thinking that central banks fared better when they were believed to know more than the market did, a belief promoted by central bankers never spelling out that they didn’t know anymore than anyone else. It gave the bank greater authority and people could have more faith in it.
Such mysterious wisdom is out of vogue.
Now we all know that the central bank is just a bunch of econocrats giving it their best shot but, like everyone else, lacking divine guidance and therefore, like everyone else, capable of making mistakes.
I’ve quoted “bond dog” and British financial commentator Anthony Peters on the dilemma of central banking before. He reckons sitting on the Bank of England’s Monetary Policy Committee would fit in with the old Derek and Clive routine of “what’s the worst job you ever ‘ad”.
“You’re sitting on the MPC at the Bank of England knowing that when you get it right nobody remembers but when you get it wrong nobody forgets.”
The same applies to the RBA monetary policy board. And there’s no allowance for not being able to know what’s going to happen next.
Which doesn’t mean there aren’t things to argue about.
What is ‘full employment’?
For mine, a constant one is understanding what “full employment” might be in Australia. The temptation to say unemployment is still “historically low” at 4.5 per cent betrays a sad choice of historical periods.
Since COVID, unemployment in the low 4s has become normal. Unemployment at 4.5 per cent and rising is a problem just as inflation sticking above three per cent is a problem. The RBA should not be allowed to cheat by claiming that “full employment” is whatever the unemployment rate is when inflation is where it should be.
The novel point of interest for this month’s board meeting is the speculation about what falling housing prices are doing to consumer sentiment.
Rising prices create the “wealth effect” of people feeling richer and being more prone to spending. The reverse also happens.
The dreaded CGT
Add the media campaign declaring the end of capitalism if Labor’s modest CGT and negative gearing reforms go through and confidence to spend is again threatened.
And then there’s the real and growing impact of AI on employment and employment security.
Tighter monetary policy isn’t the only thing that can slow an economy.
No wonder at all then that the RBA wants to pause with all options open, as always. With the uncertainty, the Governor just talks a little tough to remind people.
Michael Pascoe is an independent journalist and commentator with five decades of experience here and abroad in print, broadcast and online journalism. His book, The Summertime of Our Dreams, is published by Ultimo Press.