Treasurer Jim Chalmers warns homeowners that the worst is yet to come on interest rates and the economy

Treasurer Jim Chalmers has issued an ominous warning to Aussie homeowners about interest rates and the economy as things spiral out of control in the United States.

Treasurer Jim Chalmers has warned homeowners that the worst is yet to come on interest rates and the economy amid aggressive rate hikes in the United States.

As the countdown begins to the October budget, the Treasurer is preparing to travel to the US for meetings with Federal Reserve chairman Jerome Powell and World Bank president David Malpass.

And he’s warning Australians that the “deeply concerning” developments around the world are driving the discussions.

“These global challenges we confront are intensifying, not dissipating: inflation is rampant; central banks are responding with blunt and brutal rate rises; and growth is slowing,’’ Dr Chalmers said.

“The economies of the US and Britain are in reverse; China’s has slowed markedly; and the war in Ukraine sparked an energy crisis that shows no signs of abating. This is why the International Monetary Fund won’t rule out another global recession.”

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Treasurer Jim Chalmers has warned homeowners that the worst is yet to come on interest rates and the economy (Photo by Martin Ollman/Getty Images)

The warning comes as The Australian’s columnist Robert Gottliebsen urged homeowners to “batten down the hatches.”

“We are set for stormy weather which will last well into 2024,” he wrote.

“Because of Australia’s foolish home-lending spree in 2020 and 2021, the Commonwealth Bank estimates that our ‘neutral rate’ is about one per cent below that of the US.’’ he said.

“This means our current Reserve Bank official market rate at 2.35 percent is already hitting the economy, but the impact is delayed by two to three months, signifying the gap between rate announcements and the hit to families with big mortgages.

“If we were forced to increase our interest rates to match a US 4.6 per cent rate, it would mean another 2.25 per cent in interest rates increases, which would cause carnage in our housing market and make the predictions of a 20 to 30 per cent fall in house prices a reality.”

Mr Chalmers, writing today in The Australian, warned that the ongoing impacts of Covid-19 had already forced Australia to fund billions of dollars in new spending for healthcare, aged care and emergency financial support – which the previous government had not budgeted for.

“The final budget outcome for last year will show a substantially smaller deficit figure than what was first projected – not just because of a big temporary boost from commodity prices but also because billions of dollars that were promised weren’t invested, are now spilling into later years and still have to be paid for,’’ he said.

“While those budget improvements are temporary, the spending pressures are constant and compounding. Welcome short-term improvements in revenue raised from our resources in the near term go nowhere near to properly paying for the five fastest growing areas of spending in the budget: healthcare; the National Disability Insurance Scheme; aged care; defence; and the rising cost of interest we pay to service $1 trillion of debt.”

The Australian’s columnist Robert Gottliebsen urged homeowners to “batten down the hatches”, predicting the “stormy weather” to last until 2024. Picture: iStock

Despite this, low unemployment and economic growth suggested Australia will fare better than our peers.

“I’m optimistic and confident about the future but realistic. Like other countries we still face that now-familiar and unwelcome combination of supply-chain disruptions, high and rising inflation, and falling real wages,’’ he said.

“Our challenges are primarily, though not exclusively, global, but a wasted decade of missed opportunities and warped priorities has made us more vulnerable to these shocks.”

“That means focusing on areas where our policies and sensible investments can make a meaningful and realistic difference without making life harder for the independent Reserve Bank.

“It means responsible cost-of-living relief; investing in our people, their skills and their future; and beginning the hard task of longer-term budget repair.”

Mr Chalmers is not referring to new measures in the budget, but exisiting cost of living election promises, for example childcare fee relief which comes into effect next year.

“It means getting wages growing by training people for higher-wage opportunities; childcare changes to make it easier to earn more; and supporting pay rises in the care economy,’’ he said in the op ed.

He described the budget as a “ fairly standard bread-and-butter budget” suggesting “it’s the beginning, not the end, of a big national conversation about our economic challenges, the structural position of the budget going forward, and the kinds of choices we need to make as a country in the future about what our priorities are, what’s affordable and what’s fair.”

“I’m more convinced than ever that Australians are up for real talk about the state of their economy and the budget, and that there’s a hunger to work together. No one budget can deal with pressures that have been building for a decade, but the hard work has begun.”