Our monthly economic review and advice for the RBA board is upbeat, at least if the risks are ignored.

The US Federal Reserve has increased the US Fed Funds rate to 3.25% and has issued an explanatory statement that makes clear that further rate rises are likely. The US economy’s growth is firm, monetary policy is still accommodative and policy accommodation can go on being removed at a measured pace. Indeed, we read the Fed as signalling a more hawkish line.

Add to this the upturn becoming more evident in Japan, the continuing growth in China at a 9-9.5% annual rate, and the success in stimulating growth in Latin America and Eastern Europe (if not in old Europe itself), and it’s hard to argue that global economic conditions are deteriorating.

At home, consumers are reawakening after the sluggish patch in the early months of the year, reassured about what they have been told about the interest rate outlook and the prospect of tax cuts. We don’t expect consumers to be unsettled by the proposed new industrial relations landscape, union protests notwithstanding. Retail sales and housing approvals bounced back in May. Job vacancies fell slightly after an exceptionally strong increase in April, and are still running at double-digit rates. Read more here.

Meanwhile Alex Erskine considers the domestic risks more closely – “A hedge fund near you” – here. And Henry visits the deep north, and learns more than he bargained for – here.

Peter Fray

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