Will Treasurer Jim Chalmers finally heed Michele Bullock’s interest rate warnings?
RBA governor Michele Bullock has delivered another stark reminder that government spending could force interest rates higher, but will Treasurer Jim Chalmers finally heed the warning?
Within a matter of just a few weeks, hopes of another interest rate cut to ease the strain on struggling borrowers have been completely extinguished and now they’re facing the real prospect of rate hikes in the new year.
The complete reversal of expectations underlines the fine balancing act the Reserve Bank faces as it looks to rein in inflation without triggering a spike in unemployment.
And that’s without the added political pressure from Canberra, led by Treasurer Jim Chalmers, who has had a strained relationship with Michele Bullock since she was appointed governor of the independent RBA in 2023.
On Wednesday, Bullock took another swipe at the government, warning that any further increase in government spending would likely put further upward pressure on inflation, and in turn, could lead to higher interest rates in 2026.
But it’s not the first time Bullock has put the government on notice.
For more than a year, Bullock has been warning federal and state governments to curb their spending or risk inflaming inflation.
She warned Chalmers against adding too much heat into the economy in public statements following last year’s budget and again in the lead up to the federal election, when Prime Minister Anthony Albanese was declaring the worst of the inflationary crisis was behind us.
So it’s no surprise with inflation jumping back up to 3.8 per cent – well ahead of the RBA’s target range of 2-3 per cent – that Bullock has issued another reminder that the Australian economy is not quite out of the inflation woods.
According to Chalmers, his reforms to the RBA over the last couple of years have enhanced the central bank’s independence, but critics says he’s been one of the more vocal Treasurers when it comes to RBA decision-making, chiming in with his opinions before and after most monthly meetings, especially when the economic data has pointed towards a potential rate cut.
Chalmers has again defended the government’s public spending boost, but with the inflation rate once again heading in the wrong direction, borrowers will be hoping he finally heeds calls for some restraint.
