Hammer blow: Treasurer plays it fast and loose when it comes to interest rates
Treasurer Jim Chalmers mightnât have expected his weekend comment â made ahead of expected low growth figures later this week â that interest rate rises were âsmashingâ the Australian economy to set off the reaction it has. After all, itâs been something of a Chalmers mantra.
In June he said rate rises were âhammering the economyâ. On another occasion that month he said higher rates were âhammering consumptionâ. At the start of July, he said discretionary spending had been âabsolutely hammered by higher interest ratesâ.
âThe Treasurerâs comments were nothing new,â Prime Minister Anthony Albanese said, fending off questions at a Monday Perth news conference.
But new or not, the comment is touching an extremely sensitive, exposed nerve, again highlighting the divergent positions of the Reserve Bank and the government.
The bank is determined that inflation, which was an annual 3.8% in the June quarter (3.5% for the month of July), must be brought down to the target range of 2â3% as soon as practicable while also preserving employment. For the government, reducing inflation is a high priority but it is increasingly worried about an economy thatâs crawling along the ground.
Chalmers tries to step carefully to avoid directly criticising the bank, but the differences are obvious, and his message is being sent through a loudhailer.
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On Monday he doubled down on his âsmashingâ assessment, while âcherishingâ the independence of the Reserve Bank. âWeâve got different responsibilities. Where our interests align and where our objectives align is on getting on top of this inflation challenge in our economy which doesnât smash people who are already doing it tough enough,â he said.
âI think itâs self-evident the interest rate rises already in the system are putting people under pressure and slowing our economy. And I think the Australian people, frankly, expect me to tell it like it is.â
The sluggishness of the economy is set to be starkly obvious when the latest GDP figures are released on Wednesday.
Forecasters are predicting growth for the June quarter of 0.1 or 0.2 of a percentage point. Thatâs bad enough â if the figure were negative, the government would fall into a serious panic.
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Recent indications from the US Federal Reserve that American rates are set to fall imminently in normal circumstances would raise hopes Australian rates would soon follow.
But Reserve Bank deputy governor Andrew Hauser dashed that prospect when he spoke to The Conversationâs podcast last week.
Just returned from a meeting of central bankers in the United States, Hauser flagged that at this stage the Reserve Bank was not shifting from governor Michele Bullockâs indication that, based on present knowledge, the bank would not be dropping rates any time soon. Indeed, at its last meeting the Reserve even discussed raising rates.
âSadly, at the moment Australian inflation is a bit stickier than it has been in the US,â Hauser said. âWeâre not yet as confident, as [Fed head Jay Powell] is in the US, that inflation in Australia is back on a sustainable path back to target. And therefore we have to hold rates where they are for the time being.â
While cost of living â a witchesâ brew of inflation and interest rates â and other issues see Labor now 50:50 with the Coalition on a two-party basis in this weekâs Newspoll, the figures show the public has little faith inflation would be better if there were a Dutton government.
People were asked whether inflation would be higher, lower or the same if Peter Dutton and the Coalition were in power rather than the Albanese government. Only 24% said it would be lower; 41% said it would be the same and 18% thought it would be higher.
For most voters, there seems to be nowhere to turn to get out of the present economic impasse.
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