The Reserve Bank has a special term for Donald Trump

Before rejoicing with some extra money in your wallet after the Reserve Bank’s latest cut in official interest rates, grab the paper (or check out your digital version) and read the world pages.

There, you’ll see another photograph of Donald Trump and another story about something he’s done. It might be his questionable decision to accept a $US400 million plane from Qatar, cutting essential services or blowing out the size of the budget deficit (now on track to surpass $US37 trillion within weeks).

Home buyers will be happy with the RBA’s latest rate cut. But it hides the full threat posed by the uncertainty being caused across the globe by Donald Trump.Credit: Alex Ellinghausen, AP

It’s news, but the Reserve Bank has another word for it - “uncertainty drag”.

And that drag now has a number.

While the focus for most of us is on the official cash rate and what that means for our mortgage repayments, the RBA is trying to set policy as the big orange man rampages through economic orthodoxy.

As best as it can determine, Trump and tariffs means a little slower growth here, a small bump in unemployment and inflation edging down to the middle of the bank’s 2-3 per cent target band.

But that’s just on what he’s announced (for now). Knowing that Trump could change policy direction if his Big Mac is not cooked properly, the RBA has looked at the best and worst-case scenarios.

In the best-case scenario (or wishful thinking), Trump sees the error of his ways and brings tariffs back to where they were last year.

If that was to happen – and no one is really hopeful it will – the economy picks up as businesses and consumers go about their day-to-day lives without the threat of huge change.

Unemployment stays steady and inflation continues to edge down but takes a little longer than expected.

The bank also looked at a scenario it labelled “trade war”.

In that world, in which tariffs look similar to what Trump unleashed on “liberation day”, Australian economic growth slows sharply for the next two years.

Total GDP, currently $2.7 trillion, would be 3 per cent or more than $80 billion lower by mid-2027 than is forecast.

A trade war would also cost more than 200,000 people their jobs, with unemployment increasing to almost 6 per cent from its current level of 4.1 per cent.

Inflation would also slow faster than expected, down to around 2 per cent by the end of next year.

The impact of Trump is colouring what is shaping up as a pretty good story for the Reserve Bank and its management of monetary policy under Michele Bullock.

It is meeting its dual mandate of getting inflation within its 2-3 per cent band and keeping as many Australians as employed as possible.

While there wasn’t a “Mission Accomplished” poster behind Bullock when delivering her post-meeting press conference, there was certainly a “look what we’ve achieved” vibe to her comments.

But that’s all beholden to the guy in the White House.

Bullock described the Trump uncertainty drag as akin to being on a type of rollercoaster. Except the dip in this rollercoaster could, she admitted, deliver Australia a recession.

While that is an outlier of an expectation, the fact that Trump’s tariff policy could do so much damage to a country with a relatively small direct trading relationship tells you something about the all encompassing problems being caused by the US administration.

The governor described the quarter percentage point cut as a “confident” one. But hiding behind that was the fact the bank used the term “uncertain” on 132 occasions in its quarterly economic outlook.

Almost every one of those mentions of “uncertain” was in the context of Trump and his trade agenda (or whatever other crazy idea pops into his head).

That the bank’s monetary policy committee also considered a half percentage point cut also goes to the uncertainty at play across the world. As Bullock noted, it’s not just uncertainty but the unpredictability that is a major danger.

So enjoy the rate cut, as it shows the RBA’s game of patience with inflation and employment is being won. But Trump could come in and upend, again, the game board any day.

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