(Image: Private Media)

What words do you least want to hear from your central banker? “I'm not expecting there to be a recession, but... we're on a narrow path.” They were spoken by RBA Governor Philip Lowe last month to a conference of central bankers in the global prudential capital of Zurich.

So, how wide is this road?

  • There are times when monetary policy is easy and your range of good choices is wide. Like driving a car on a flat road on a dry day, you can drive with one finger or jiggle the steering wheel and both are fine.
  • There are times when monetary policy is hard and your range of good choices is very small. Like driving a race car in the rain -- you need clear vision, strength and precision timing to avoid a horrible crash.
  • There are times when you’re done for no matter what. Like if the semitrailer in the next lane has tipped over and, while you may have a moment to watch it tumble onto the roof of your car, there’s no way to move. You will try to do fast, heroic things but they are in vain: your fate was sealed at a time in the past.

Australia is going to find out whether we are in scenario two or three. The RBA has either a small chance to get things right -- or perhaps no chance at all.