Forecasts and advice. Reserve Bank Governor Glenn Stevens had some timely advice last night on two fronts for the (shrinking) pack of private economists and media economics writers who have been constantly barking that the RBA would cut interest rates once more in 2015, or perhaps twice. In his penultimate speech of the year, Stevens all but told them last night at the annual Australian Business Economists’ annual dinner that rates won’t move at next Tuesday’s final meeting for 2015. Replying to a question which gave reasons why the RBA would or wouldn’t cut, Stevens replied: “You are making the case for us to sit still. It is an idea I happen to agree with.”  So no rate cut looms on Tuesday.

And in later comments he made a few more telling points about the effectiveness of interest rate cuts. It is something he has said previously (as has his deputy Phil Lowe and head of economics, Chris Kent.) So to make sure the private side of the dismal science got the message, Stevens asked:

“The question I ask is: how do you make growth better? It may be you can make it better by lowering rates, it may be that you can make it better most effectively by articulating a case for stability, playing to the positive things that are happening, not smashing the savers over the head further, if the relative effect of that stimulating is not as great as it used to be. I am more than content to lower rates if that actually helps. But is that the best thing to do at any particular time, that’s the question that I frame.”

— Glenn Dyer

Now go and have a holiday. And then the classic advice as he pointed out that after next Tuesday’s meeting the RBA board (with a new member replacing Roger Corbett) will not meet again until February. “As for February, you know that’s three months away,” he told the conference. “We’ve got Christmas, we should just chill out, come back and see what the data says.”

Since when have you heard a senior econocrat or policymaker tell a key part of their constituency to go away and take a break in such a direct (and colloquial) fashion? Next week Stevens will speak in Perth less than a day after the RBA board meeting in that city on “Economic Conditions and Prospects”. That speech has to be read with last night’s (“The Long Run”) and the speech he made on November 5 called “The Path To Prosperity”. Glenn Stevens is now in his final year as governor and the trio of speeches gives us a very good idea of how he sees Australia in the short, medium and long term (he is confident). We should expect a few more speeches next year in a similar and reflective vein. He has had to guide the bank and the economy through the greatest test since the Second World War (and before that the Depression) in the shape of the GFC, as well as the political instability of the Rudd, Gillard, Rudd and Abbott years. — Glenn Dyer

US rates: locked and loaded. The second estimate of US third-quarter GDP produced a sharp rise to an annual growth rate to 2.0%, as more consumer spending offset lower corporate profits, and US savings reached their highest level in three years. While not as strong as the 3.9% growth rate in the second quarter (which was really a bounce back from the weak, winter-dominated first quarter), the US economy is growing around as fast as it can and can handle the first rate rise in eight years (which could simply be achieved by changing the wording of the rate from “zero to 0.25%” to just “0.25%” and make it clear rates will rise in a gradual rate). But the most interesting part of the latest third-quarter GDP report was another rise in the personal savings rate — 5.2%, up from the first estimate of 5.0% and the highest since the end of 2012. The second-quarter rate was lifted to 5.0% from 4.6%, a significant boost as well. US economists point out that the rising savings rate helps explain the weak state of retail sales (but not US car sales) and can be explained by a surprising fact. With wage rises weak (like Australia), Americans are saving their savings from lower fuel prices, not spending them, which is contrary to most, if not all forecasts a year ago when oil and petrol prices started falling. — Glenn Dyer

Peter Fray

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Peter Fray
Editor-in-chief of Crikey