And it seems to be all about speeches this morning, as US President Biden talks up the economy and RBA Governor Lowe promises rates will not be at 4% by year-end?
No one was expecting the RBA cash rate to be at 4% by year-end. So maybe the ‘Governor in limbo’ just wanted to get at least one forecast right, before he either leaves the office or is forcibly removed?
Against the recommendation of Governor Lowe himself, the Federal Treasurer has begun the process of an independent investigation and review of the Reserve Bank of Australia.
Exactly what I have been suggesting was urgently necessary since the middle of last year. It is fantastic for the nation to have a Treasurer who is prepared to act.
We were the first to be loud and outspoken about the ineptness of the RBA.
They simply cannot do the job they are employed for. They have to go. This means a full revolution of the institution from top to bottom. This can only occur with the full removal of the existing Governor, Deputy Governor and the installation of real intelligence at the highest levels of the institution.
Future Governors of the RBA must be appointed from outside the bank. The Australian people deserve no less.
The existing RBA format will now see rates raised late and more aggressively than would have otherwise needed to be the case.
Yes, there is a risk of a fall-off-a-cliff recession in Australia. The Governor cannot see it. Yet many can and this simply represents the RBA’s inability to consider the real-world environment in real-time. For instance, in his speech today, making the breathtaking call that policy will be in response to future data.
A year 11 economics student can do that. What are we paying for?
Expect another two 50-point rate hikes this year and one or two 25-point hikes.
Recession in the US avoidable?
US President Biden has consulted with Larry Summers who is one of America’s least capable economists and afterwards said that a recession in the USA is definitely avoidable? Yes, but not on the current economic track the US finds itself.
We are seeing an awful lot of political spin on the US economy at the moment. The Biden administration is all about re-election by avoiding any responsibility whatsoever for what happens with inflation or the economy. Unless some good news eventuates of course.
What this suggests is that the potential for removal of the gas tax is likely to remain just that. Even if the President agrees to it in principle. It will remain unlikely to clear Congress.
The Administration looks unlikely to do much else at all, to help American consumers weather the onslaught of the storm of higher prices and interest rates simultaneously.
Rather than improving, there has been some initial stock buying response, the outlook for the US economy just darkened considerably. It may take the market another 24-48 hours to figure this out. I would remain cautious on US stocks for now.
As for the Australian equity market; let the rally happen, and then sell it!
Market insights and analysis from Clifford Bennett, Chief Economist at ACY Securities
