A febrile atmosphere surrounds the Reserve Bank, one that twists and contorts into monstrous shapes even the most mundane of things.
The cost of holding an RBA board meeting and dinner in Western Australia is now equivalent to Emperor Nero fiddling while Rome burns.
Ho-hum comments about how Australians tend to respond to high housing costs becomes a lecture to poor renters about how they should bring in a lodger or move back home.
Leaks appear in confidential parliamentary committee briefings – a sure sign that monetary policy has moved from the realms of economics to that of politics.
In the midst of this swirling miasma of competing agendas and grievances – real and imagined – RBA officials are pilloried for restating what they have said 1000 times before.
All of this is the consequence of pursuing the most aggressive monetary policy tightening since the 1980s, made many times worse by the forecast blunders that had governor Philip Lowe claiming in 2021 that rates would stay at near zero until 2024.
Well, it’s 2023, and we have entered a world that central bank technocrats are wholly incapable of navigating.
In as much as monetary policy has functioned this way for three decades, deputy governor Michele Bullock’s comments that the unemployment rate is too low and will have to rise are in no way controversial.
As inflation surged towards 8 per cent, the central bank for the past year has been using its single, blunt tool of interest rates to dampen growth.
As consumers spend less, employers will rethink their hiring and the size of their workforce – something Ai Group chief executive Innes Willox says is already happening.
The twin objectives of achieving full employment and low and stable inflation may appear to be working at cross purposes at the moment, but over time they reinforce each other, Bullock argues.
“It is very difficult to sustain full employment without price stability,” she says. Her unvarnished comments that unemployment will have to rise are not “shameful”, as unions leaders say. But they are bound to inflame tensions at a volatile moment in the country and Reserve Bank’s history.
The conclusion is not that the central bank is being assailed by economic illiterates or wilfully ignorant ideologues. The conclusion is the RBA needs to be more careful with its words.
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