Michele Bullock’s hawkish approach revealed in minutes of Cup Day rate hike

Has Treasurer Jim Chalmers actually got himself – and the rest of us - a more hawkish Reserve Bank governor in Michele Bullock than her predecessor Philip Lowe?

RBA governor Michele Bullock. Picture: Aaron Francis / The Australian

Has Treasurer Jim Chalmers actually got himself – and the rest of us - a more hawkish Reserve Bank governor in Michele Bullock than her predecessor Philip Lowe?

Now, we obviously got something of a hint in that direction with her – to be more exact, the RBA board’s – Cup Day rate hike, the first since June.

Now true, Governor Lowe could well have also led the board to a Cup Day hike, if he’d still been there – given the September quarter inflation numbers.

And true also, Treasurer Chalmers had effectively ‘encouraged’ Bullock – and the board – to hike, when he’d delivered his ‘hint, hint, no need to hike’ message ahead of the meeting.

Nevertheless, Bullock’s seeming hawkishness was brought into sharp relief Tuesday by the detailed minutes of the Cup Day meeting and her comments at an ASIC forum.

Each on their own drew a very clear ‘line in the sand’ on inflation; taken together they made a very solid line. If we get into 2024 and the inflation and wages numbers are not coming down fast enough, there’ll be more hikes and ‘so be it’ if the jobless numbers climb.

On that point, HSBC’s chief economist - and former senior economist at the RBA – Paul Bloxham made a very telling point Tuesday.

This was that Lowe’s – and by presumption, Bullock’s – “narrow path” to getting inflation down within a reasonable time horizon, without a significant rise in the jobless rate, was somewhere between optimistic and unrealistic.

What stood out in the detailed minutes was an explicit reference to the fact that the RBA’s internal forecasts of getting inflation, just, back to below the top of its 2-3 per cent target range by the end of 2025 - a rather uncomfortable two full years into the future – was on the assumption of 1-2 more rate hikes.

Those forecasts were made before the Cup Day hike. So, optimistically, you could say that we’ve now had the one rate hike we had to have; we don’t need any more.

I actually believe that will prove to be the case; indeed, that, arguably, it will be shown that we didn’t even ‘need’ the Cup Day hike.

But my predilections and indeed peregrinations aside, both that explicit reference and the broader discussion revealed in the minutes, showed a new governor who was definitely ‘not for turning’ from her obligation to get inflation back below 3 per cent no later than the end of 2025.

And so far she has her board behind her; or at least a sufficient majority. We’re not told the vote numbers for the Cup Day hike, and won’t be told the votes for the next few policy meetings either.

But, then enter her comments at the forum.

That, given our woeful productivity, generalised 4 per cent wage rises were incompatible with getting inflation below 3 per cent.

Again, simply, brutally, we get such wage rises – or indeed higher – and we will get whacked with rate hikes.

Again, I’m a little more optimistic.

But we will see; and we have been told.