RBA and Fed meetings and inflation figures to set the foundations for the year ahead

The looming meetings of the RBA and the Federal Reserve plus the latest inflation figures will set the foundations for the year ahead and also test Treasurer Jim Chalmers.

Looming RBA and Federal Reserve meetings plus the inflation figures will set the foundations for the year ahead for the sharemarket, for the property market, and the economy more broadly.

Two weeks to go and the Reserve Bank will finally kick off its new year with a truly seminal interest rate meeting.

A week ahead of that, the Fed does the same thing in America, and we also get the December quarter inflation numbers from the ABS.

Those three things – the two meetings and the inflation numbers – will combine to essentially set the foundations for the year ahead for the sharemarket, for the property market, and the economy more broadly.

What makes the RBA meeting seminal is that it will be the first to be held under the new ‘Chalmers rules’.

Now, treasurer Jim Chalmers has some way to go to match his beloved Paul Keating in initiating significant – and positive – reform of the Australian economy.

He has even ‘further to go’ to come close to Peter Costello’s record of budget surpluses every year, and indeed tax cuts almost every year as well, as well as a sweetly singing economy.

But he has already gone into history with his changes to the RBA, as well as of course, giving it – and us – its first female governor in Michelle Bullock.

Bullock will run the meeting in two weeks under MOST of the ‘Chalmers rules. It will be over two days and also for the first time have a press conference after the decision is announced.

But it will NOT have the most basic change: disclosing how the board voted. Although, it will be ‘interesting’ to see how Bullock responds to questions on that at the press conference.

Federal Treasurer Jim Chalmers.

What makes this seminal meeting even more so, is that it comes right at a likely pivot towards – if not yet fully at – rate cuts.

Or indeed, the opposite: Bullock pouring cold water on the prospect of cuts, or at least of EARLY cuts.

What adds further frisson – and indeed absolutely vital information – is that this coming meeting is one of four in the year that follows the quarterly CPI data from the ABS.

That’s always critical to the discussion and the decision. But it’s even more so this year given both the last two rate decisions – the November hike and the December pause – and the prospect of a ‘surprise’ fall in the inflation rate.

I put surprise in quotation marks but a fall would not be a surprise to me, and nor should it to either the RBA itself or the broader economentariat.

The kick-up in inflation in the September quarter was a one-off, yet the annual rate still dropped to 5.4 per cent.

It will have dropped below 5 per cent over the December year, and perhaps even into the low-4s. Although, I suggest, a drop below 4 – as one economist has predicted – would be highly ‘optimistic’.

Whatever, the inflation data surfaces at 11.30 Wednesday week. They will spur immediate action in both the bond and share markets; along with an avalanche of predictions about the RBA’s decision the week after.

Then the Fed’s decision surfaces less than a day later, likely sending Wall St into a frenzy ahead of our market’s opening on the Thursday morning.

Originally published as RBA and Fed meetings and inflation figures to set the foundations for the year ahead