The RBA could’ve cut rates. Instead, it left households stranded
The lack of courage the Reserve Bank showed at its December monetary policy meeting has left it in a dilemma of its own making as we head into 2025 — a year that will be dominated by a federal election and the antics of the new US Trump administration.
The Australian Bureau of Statistics’ December labour force data, released Thursday, confirmed the economy had come through a slight weakening in employment in the second and third quarters. While the jobless rate edged back up to 4.0% from 3.9% in November, 56,000 new jobs were created in the month and the participation rate hit an all-time high of 67.1%. The 0.4% growth in employment in December was double the 0.2% rate over 2024 as a whole. And remember, this is after job vacancies rose in the three months to November for the first time in more than two years. If we’re not back to the roaring jobs growth of 2023, we’re still doing pretty well.
Some economists and commentators are using the stronger figures to dismiss any need for interest rate cuts at the RBA’s February meeting, despite the clear softening in inflationary pressures revealed in the November inflation data. Indeed, some of the more ridiculous galahs at places like the Financial Review could soon start squawking about the need for more interest rate rises to cool down an “overheating” labour market.
That means the failure of Reserve Bank governor Michele Bullock and her board to cut rates in December — a move amply justified by both the evidence of softening inflation and the willingness of central banks overseas to cut rates while inflation was still above their targets — now leaves the bank stranded, especially with the RBA under pressure to hold off rate cuts while the impact of the Australian dollar’s fall on inflation becomes clearer.
A rate cut in December would have given the markets what they wanted and allowed the RBA more time to ponder the fallout from the dollar — and the consequence of Mad King Donald’s barmy economic policies starting next week. Instead, this intellectually feeble, evidence-averse and ideologically rigid central bank ducked the challenge and thus left itself further exposed.
Interestingly, after a long period of losses, the private sector saw vacancies rise 4.7% in the three months to November, outstripping the small 0.4% rise in public sector vacancies. For months now, right-wing economists and commentators have been whingeing like spoilt brats about the growth in public sector employment, as if the expansion of aged care, disability care, childcare, and the need for greater health services for an ageing population is some sort of outrage to economic orthodoxy. There were even claims that such growth was “crowding out” private-sector employment. Not so, as it turns out (though don’t expect any acknowledgement of error from the “down with healthcare!” crowd).
That will enable the doctrinaire automatons of the RBA to justify to themselves continuing to sit tight on interest rates — while ordinary households pay the price for inflation caused by greedy companies.
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