Bullock’s ‘half pivot’ another sign of cautious approach to inflation risk

All eyes will turn to Thursday’s potentially explosive unemployment numbers after the RBA’s ‘half pivot’ on Tuesday.

RBA governor Michele Bullock during Tuesday’s press conference. Picture: NCA NewsWire / Jeremy Piper

Reserve Bank governor Michele Bullock couldn’t quite bring herself – in either the statement or at the media conference – to use the word, but she’s led her board to adopt a ‘neutral’ stance.

That’s to say, she and the RBA have engaged in a ‘half pivot’.

She’s pivoted away from the tightening bias that had prevailed at every single RBA meeting since her predecessor, Philip Lowe, kicked off that first rate hike, all the way back in May 2022.

At every one of those meetings, the board either hiked or thought about hiking; and in the post-meeting statement explicitly talked of possible further hikes.

But it was only a ‘half pivot’, she did not do the full pivot of especially the big brother Fed in Washington.

After its December meeting, Fed head Jerome Powell’s statement still talked explicitly of possible future rate hikes.

But coming back at the end of January, Powell did the full 180, switching to talking about possible future rate cuts.

In our RBA’s case, after its February meeting, Bullock’s statement still explicitly spelt out that “a further increase in interest rates cannot be ruled out”.

But in Tuesday’s statement she said: “the Board is not ruling anything in or out”. The half pivot. The neutral stance.

She had quite deliberately – and I would, add, very sensibly - not followed the Fed in its full 180.

That 180 has turned somewhat awkward for Powell, as markets ran away with the idea of Fed rate cuts cascading all the way through 2024.

US inflation, though, has threatened to kick back towards 4 per cent – or fully double the Fed’s 2 per cent mandated target.

Or, at best, stay stickily above 3 per cent.

The latter was precisely the concern, Bullock highlighted, for Australia, on Tuesday.

Powell and the Fed might well have to take a leaf out of Bullock’s copybook, by ‘half pivoting’ back to ruling nothing in or out, in its statement early Thursday morning our time, after its two-day meeting.

We need to look at Bullock’s half pivot on two levels. Why, she’s moved away from the tightening bias; but also, why the next rate move could still be a hike, or a cut.

She’s moved away because she’s much more confident that the RBA is going to pull off its (joint Lowe-Bullock) ambition of getting inflation back sustainably in the 2-3 per cent band, without sending the jobless rate rocketing to and even above 5 per cent.

But, the big risk is inflation staying stickily in that 3-3.5 per cent range. And worse, people generally locking that into their expectations, and so their behaviours, especially in chasing wage hikes.

That could cause at least one more rate hike.

While at the same time, she’s only too aware of the risks of the economy really hitting the wall. And that would prompt the first rate cut.

This makes Thursday’s official jobless numbers from the ABS very, very telling and potentially explosive.

Especially as there is now a long – potentially very long – eight weeks to the next RBA meeting in early May. With another jobless number smack in the middle.

Originally published as Bullock’s ‘half pivot’ another sign of cautious approach to inflation risk