Following the Fed
The RBA probably won’t be too far behind the US in the switch from tightening to an easing cycle. But, to quote the Fed's Jerome Powell, it's "far too early to declare victory”.
Federal Reserve chair Jerome Powell’s shift in focus away from fighting inflation and towards preventing a recession has put rate cuts in the world’s largest economy very much back on the table in 2024. Possibly even three of them.
But while the Fed’s messaging sparked a major rally for global sharemarkets (and money markets are pricing in easing in Australia) we’re unlikely to hear Reserve Bank governor Michele Bullock make any similar noises in the near future. The RBA doesn’t meet again until February, but it's also been much more delicate than its global counterparts in the inflation battle. That’s been the case on the way up (with fewer and less aggressive increases) and may well be the case on the way down with rate cuts.
This is by design. When Bullock was asked on Tuesday whether we’re “behind the rest of the world” in tackling inflation, she shrugged off these concerns. “I don’t think we are falling behind at all,” she said. “I think we’ve taken a cautious approach and we will continue to watch the data.”
Slowing the economy enough to bring down inflation, while keeping an eye on struggling households and trying not to wreck the labour market, is a balancing act.
