In this show we look at the technocrats at the Bank for International Settlements, how they came to hold so much power, and what that means for us today. Timely, given the Jackson Hole bankers “love-in” happening this week.
This builds on my earlier show “Who Killed The Australian Dream?” recorded with Elisa Barwick from the Australian Citizens Party, see the link here. https://youtu.be/9YbCc9NxBfs
In today’s deep dive, Elisa Barwick from the Australian Citizens Party shares her research on why housing has become so expensive, and what can be done about it. But this is not the normal discussion of high migration or currently government policy, rather it sheets the cause to a chapter of history dominated by neo-liberalists, austerity and the rise of technocrats who still now dominate our lives.
The Reserve Bank held its cash rate at 4.35% for a sixth straight meeting on Tuesday and lifted its forecasts for inflation and economic growth. In her press conference after the policy decision, Governor Michele Bullock said there’s still a risk that inflation will take too long to return to target and said it’s too early to be talking about imminent easing. Core prices at 3.9% remain well above the bank’s target and its largely driven by non-discretionary spending such as insurance, education and housing rent.
It now sees underlying inflation easing to 3.5% by the end of this year, and then hitting 3.1% in mid-2025. The gauge is seen falling just shy of the 2.5% target mid-point at the end of the forecast horizon.
The governor did tell reporters that the board discussed a hike before deciding to pause again and said a tightening couldn’t be ruled out due to upside risk to inflation.
But as governor Bullock delivered her comments and answers at Tuesdays press conference, it became clear there are disconnects between inflation in Australia and other countries, a divergence between the bank and markets about the future trajectory of interest rates, a revision to how restrictive current interest rate settings are in Australia, and a problem with the impact of Government “support” in its broadest sense estimated to be circa $40 billion across federal and states, plus the tax cuts.
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As expected, the Bank of England finally cut the base rate by 0.25%, to 5%, the first cut in four and a half years though it was a finely balanced decision which reflected increased confidence that the worst inflation shock in decades, was easing. The Bank of England governor, Andrew Bailey, said inflationary pressures had “eased enough” to enable the first cut since the Bank stopped ramping up borrowing costs this time last year.
The MPC was split by five votes to four, exposing divisions within the central bank’s most senior ranks, with Bailey casting the deciding vote for a quarter-point reduction.
Households which saw borrowing costs rise to the highest level since the 2008 financial crisis can look to lower mortgage rates, though the bulk remain on high fixed rates for now. But Bailey said savers and borrowers should not expect large reductions over the coming months, amid concerns about lingering risks to the economy. “We need to make sure inflation stays low, and be careful not to cut interest rates too quickly or by too much,” he said. “Ensuring low and stable inflation is the best thing we can do to support economic growth and the prosperity of the country.”
Remember that Prices remain significantly higher than three years ago and are still rising despite Inflation falling back to the 2% government target in May. The Bank remains concerned over stubborn price increases in the service sector of the economy and resilience in wage growth.
So, while the Bank of England did cut, the UK economy is not out of the woods yet, and we should expect a tick up in inflation ahead, so the next few months data will still be important. And taxes of course, will continue to grind higher.
The Federal Open Market Committee decided to leave the cash rate unchanged yesterday, and it’s weird that the biggest financial news from Wednesday is that they did nothing at all, and did not committing to doing anything in future, despite the call from some to cut rates in a pre-emptive intervention to head off a recession.
As always traders parsed every nook and cranny of the FOMC statement, while billions of dollars changed hands.
Powell said decisions on monetary policy are a “very difficult judgment call,” and he laid out scenarios for everything from cutting several times this year to no cuts at all. If inflation moves down in line with expectations, growth remains reasonably strong, and the labor market remains consistent with its current condition, a rate cut could be on the table in September, he says.
Eyes now turn to the Bank of England, who may or may not cut rates in the UK today. With inflation close to 2% and an expectation of an ECB like rise in inflation ahead, it’s a line ball call.
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This is an edited version of a live discussion with Robbie Barwick from the Australian Citizens Party, as we explore the current status of the war on cash, regional banking, post offices, and the need to revolutionize the financial system for ordinary people.
Another outing with Journalist Tarric Brooker, as we pick over the latest data, with a focus on what is happening in the real economy. We also discuss the real race many are running in terms of no real income growth, and the political and economic implications of this ahead.
You can find Tarric’s charts at https://www.burnouteconomics.com/
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A new report from the Finance Industry Peak Body, UK Finance, which represents more than 300 firms in the UK, reveals that cash remained the second most popular payment method, after debit cards – with an estimated three million people still relying on it. Their research suggests 1.5 million mainly used cash in 2023, up from 900,000 the previous year.
This was it appears an unexpected jump in the number of people who mainly use notes and coins for their daily spending, despite all the propaganda that the UK moving closer to becoming a cashless society. A UK Finance spokesperson said it would monitor the situation regarding people who mainly used cash to see if this was the start of a trend or merely a “statistical blip”. We think it’s more than that.
As I highlighted in a recent post the chaos caused by the global IT outage last week underlines the risk of moving towards a cashless society. Even if the data forecasts that cash will represent only 6% of payments in a decade’s time, it’s critical if other systems go down, as we saw with the outage last week” UK Finance said. This is as close to the Swedish message of make sue you keep cash on hand in case of emergencies as it gets, without saying it!
In Australia, as I reported recently there was also a rise in cash usage, despite the banks best worst efforts, and the recommendation from the recent Senate Inquiry into Regional Branch closures also recommend making access to cash an essential service.
Its simple really people, keep using cash, and we retain a backup in case of emergency. We also know people using cash regularly has a better handle on their finances, teaches kids the real value of money, and acts as an antidote to tap tap credit based society, where banks make a dollar from every transaction, which costs us all. While the war on cash is far from over, use it, or lose it. Its that simple!
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Here we go again, as inflation, which had been falling last year, but rising in the first part of 2024, now appears to be easing again, so markets who at the start of the year saw 6 rate cuts, then trimmed them to none, and possibly a rise, are now again betting on multiple cuts later this year. Talk about fickle.
Actually, US inflation did cool broadly in June to the slowest pace since 2021 thanks to a long-awaited slowdown in housing costs as the so-called core consumer price index — which excludes food and energy costs — climbed just 0.1% from May, the smallest advance in three years the Bureau of Labor Statistics reported. Core CPI climbed 3.3% over the last 12 months after rising 3.4% in May.
Its too soon to bank big rate cuts in the US, as the data remains mixed, but the market is like a set of lemmings swinging one way and the next, in trying to out guess the FED. But certainly, it’s more likely now that the FED will cut well before the RBA where inflation is still on the up.
The RBA needs to tackle seemingly much higher and more intractable inflation while maintaining a far less restrictive policy given its 4.35 per cent cash rate, a rate lower than many peers. This is a policy error which will inflict lasing damage on the local economy.
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Today’s post is brought to you by Ribbon Property Consultants.
As I discussed on my live show, on Tuesday night with Leith van Onselen, the RBA decided to hold the cash rate at 4.35%, but there were signs of a more hawkish tone from the meeting notes, and the subsequent press conference (which I might add is becoming less useful each time thanks to weak questions supporting weak answers, come on MSM do your job….) Bullock was clear, we need more data, there are risks to the upside from sticky inflation, but employment is also an important factor, given their dual mandate.
Just remember folks, the RBA at 4.35% is significantly below several other Central Banks, including the Bank of England, which held rates on Thursday at 5.25%, despite inflation falling to 2% last month, Bank of Canada which cut rates by 0.25% to 4.75% and New Zealand’s Reserve Bank holding rates at 5.5%, despite driving the economy there into recession.
Which begs the question, has the RBA done enough on rates to squeeze inflation out of the economy in Australia, despite being lower the peers, mainly because in Australia a greater proportion of mortgages are linked to variable rates than other countries. Economists are divided, with Leith still holding the next cut will be down, as unemployment rises.
But writing on Monday, before the RBA decided to hold rates on Tuesday, Economist Warren Hogan, at the more bullish end of commentators on RBA rates, wrote in the AFR that the flow of data since the last meeting in early May made it a very close call to hold off on further tightening.
The narrow path is still attainable, but it increasingly looks like we will need to get rates up closer to 5 per cent to stay on it.
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