With inflation far too high, credit growth still too high (and rising), unemployment at record lows and the housing market recovering in the southeast of Australia and out of control in the west, we expect that at least two more rate hikes will be needed, and quite possibly more.
Many others are performing extraordinary back-flips, particularly it seems the bank economists who are queuing up to speak of rate hikes to come.
Treasurer Peter Costello also seems to have changed his tune since his strongly cautionary analysis on the 7.30 Report on Tuesday evening. As David Uren puts it: “Peter Costello sought to prepare voters for a November rise when he acknowledged that inflation was at the top of the Reserve Bank’s target band of between 2 and 3%”.
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He might be better to shut up and leave it to the RBA. John Maynard Keynes, one of the great economists, once said that economics should be like dentistry — a subject best left to the sadistic bastards that practise that black art.
Across the Pacific, the story is quite different — the US Fed decided last night, despite admitting that “readings on core inflation have been elevated”, to leave their cash rate at 5.25% for the third successive month.
The accompanying statement claimed that “the cumulative effects of monetary policy actions and other factors restraining aggregate demand” mean that “inflation pressures seem likely to moderate over time”. The chief difference in this statement compared to the August statement is the focus on “high levels of resource utilisation” as the main driver of inflation, rather than on high fuel and other commodity prices.
The markets apparently expected something a tad more hawkish — bond markets rallied and the Dow Jones yet again set new record trading and closing levels.
Read more at Henry Thornton.