RBA Governor Ian Macfarlane delivered his speech
last night to the Australian Business Economists entitled “Some Observations on
Recent Economic Developments.”
In his opening remarks, Macfarlane stated that
there were “no burning issues” he wanted to discuss. He was more forthcoming in question time:
- Looking through the volatility of the September quarter GDP outcome, Macfarlane
believes that the Australian economy is growing around 3% and is likely to
continue doing so.
- Macfarlane stated explicitly that “Looking ahead it is
easier to envisage upward risks to economic growth and inflation than it is to
envisage downward risks.” (This removes the silly “equal chance of a rate rise
or a fall” from the Governor’s August obita dicta.)
Overnight the US Fed raised cash rates by another
25 basis points and slightly softened its rhetoric to remove the idea that US
policy was “accomodative,” while maintaining the idea that there would be further
“measured” tightening. This marks the 13th consecutive rate increase from the
low of a seemingly incredible 1% in the wake of the dot-bomb and 9/11-induced
problems with the economy in mid-2003.
A recent visitor to the land of the free comments:
“Opinion seems divided on how high rates will eventually go and all eyes will be
on Chairman Alan Greenspan’s final meeting in January to see if his legacy of
control over inflation continues to a 14th consecutive rise up to 4.5%. Some
say the rises will stop at 4.5% while others peg 5% as the top rate we are
likely to see.” Henry’s view is that we won’t know for sure until we get a
sense of the consumer spending figures from the Christmas period, and how cold
the US winter turns out to be.
Read more at Henry Thornton’s website here.