Very tight labor market, which gives them the labor, it affords them to be
very hawkish, but what is interesting here is that they are seeing further
monetary tightening here. But there's a subtle thing is most
people ask this situation is, you know, what did you do today?
Why did you do what you did today? What are you going to do next is
actually more important. Well, that's all.
It's next like this. As soon as a monetary policy
pronouncement is made, the question is what comes next?
So today's hike, the 25 basis point hike, of course, was expected across the
board. And frankly, I think that it's fairly
broadly believed that this isn't going to be enough.
There'll be at least another 25 basis point hike to three point eighty five.
And then much depends on the numbers that continue to come out of Australia
and also perhaps what the Federal Reserve decides to do in terms of its
meeting not only this month, but in May and into mid-year.
It'll be critical to see what happens there, though.
There are some signs that the economy in Australia is beginning to respond to
higher interest rates. We are seeing that the comment made just
a moment ago. Inflation is down.
It's still high. It's still above 7 percent, but it has
come down by about a percentage point. The unemployment rate has gone up a bit.
Course, I think the RBA would be happier if there was a bit higher unemployment
rate, some loosening in the labor market.
I think one of the big one of the big factors that I think everyone will be
watching is what happens with when mortgage rates start ticking up in
response to higher interest rates. That was, of course, the currency is one
of the biggest things that they have to grapple with.
And we did see some some some signs of life of the Aussie housing market as
well. But, you know, that could just be seen.
No, but does Stephen I mean, this is the whole challenge.
How do you balance things, you know, not create a very hard landing, the same
sort of conundrum facing the Federal Reserve?
Well, that that that is the risk. And I think that's why the RBA has taken
these 25 basis point hikes at a time. You know, they've been very, very they
were late getting into the game. But once they got into the game, been
fairly steady in terms of the pace of rate hikes without taking too big of us
step at each Eddie, at each point. I think the key will be to watch the
both consumer spending and the labor market.
Those are the two key points. If the labor market can ease up and
spending slows, particularly again in relation to perhaps to a rate resetting
on on mortgage rates. I think that'll be a key factor.
Could not that the housing market will weaken considerably, but simply that as
a variable rates reset, there'll be a bit less cash available for spending and
that should slow down the pace of inflation as expectations may kick in
for for less spending after that. Stephen, the RBA say that it will do
what is necessary to bring inflation to target something we've been hearing from
the Fed over and over again. Is there a sense if we're close to peak
in what is peak at this point in time? I still think.
Yeah, I do think that we're close to a peak.
I think when we look at certainly the supply factors that are leading
inflation, they've eased quite a bit, a bit of an uptick in energy prices in the
last week because of expectations of the China market.
The Chinese economy turning around. But I think we can get through that
fairly well as we get into the middle of year and energy supply.
Supplies may kick in again. So it's really a matter of managing the
the demand side. And I do think as we get to mid-year and
as we continue to see a couple of more rate hikes, perhaps, I think that will
bring the demand side a little bit in into
control, if you will. And we'll set up the central banks to
hit their terminal rates by sometime in the third quarter.
I would guess.