1 00:00:05,200 --> 00:00:06,680 Speaker 1: Welcome to Fear and Greed the week ahead. 2 00:00:06,680 --> 00:00:09,600 Speaker 2: I'm Sean Almer, and as always I'm joined by economist 3 00:00:09,600 --> 00:00:11,960 Speaker 2: Stephen Coculis. You'll find him at the cook dot com 4 00:00:12,200 --> 00:00:14,880 Speaker 2: and on x using the handle the Kirk Stephen. 5 00:00:14,960 --> 00:00:16,960 Speaker 3: Good morning, very good morning to you, Sean. 6 00:00:17,920 --> 00:00:21,000 Speaker 2: Now it's all about interest rates this week. The Reserve 7 00:00:21,040 --> 00:00:24,080 Speaker 2: Bank Board starts. The meeting today finishes tomorrow two thirty pm. 8 00:00:24,120 --> 00:00:26,400 Speaker 2: We find out Tomorrow afternoon we find out whether or 9 00:00:26,440 --> 00:00:29,560 Speaker 2: not they are going to cut interest rates. 10 00:00:30,200 --> 00:00:32,880 Speaker 1: Drum roll, please over to you, Stephen Coculis. 11 00:00:33,200 --> 00:00:36,120 Speaker 3: It's a done deal. Basically, a twenty five point rate 12 00:00:36,159 --> 00:00:38,400 Speaker 3: cut is baked into the cake. It's baked into the 13 00:00:38,400 --> 00:00:42,000 Speaker 3: futures market. I think from my reading of Bloomberg and 14 00:00:42,080 --> 00:00:46,199 Speaker 3: Ruyter's surveys where they serve they ask economists all but 15 00:00:46,360 --> 00:00:48,880 Speaker 3: one or two mavericks. Dare I say as saying that 16 00:00:48,920 --> 00:00:51,720 Speaker 3: there's a twenty five point cut coming? And the reasons 17 00:00:51,720 --> 00:00:53,800 Speaker 3: are pretty simple when we just look at what's happened 18 00:00:53,800 --> 00:00:57,560 Speaker 3: between the last meeting of the RBA Monetary Policy Board 19 00:00:57,560 --> 00:01:00,640 Speaker 3: and what we're going to see tomorrow afternoon. We've had, 20 00:01:00,920 --> 00:01:04,720 Speaker 3: in no particular order, relatively weak GDP zero point two 21 00:01:04,760 --> 00:01:07,600 Speaker 3: percent growth in March, which was really disappointing and lower 22 00:01:07,600 --> 00:01:11,440 Speaker 3: than the RBA was thinking. Importantly, even though it's the 23 00:01:11,480 --> 00:01:14,640 Speaker 3: monthly inflation indicator, it's still got a lot of information 24 00:01:14,680 --> 00:01:17,840 Speaker 3: about price pressures through the quarter. So for the month 25 00:01:17,880 --> 00:01:20,720 Speaker 3: of May, so halfway through the grim quarter, we had 26 00:01:20,720 --> 00:01:23,680 Speaker 3: headline inflation at two point one percent in annual terms 27 00:01:23,760 --> 00:01:26,600 Speaker 3: trimmed mean, the one that everybody loves, including the RBA, 28 00:01:26,880 --> 00:01:29,640 Speaker 3: at two point four percent, blow the midpoint of the 29 00:01:29,680 --> 00:01:32,800 Speaker 3: target range. And then on a couple of other the indicators, 30 00:01:32,840 --> 00:01:37,440 Speaker 3: things like consumer spending, new building, construction, building approvals, these 31 00:01:37,480 --> 00:01:41,920 Speaker 3: sorts of things, consumer sentiments, global conditions. You overlay what's 32 00:01:41,920 --> 00:01:44,440 Speaker 3: happening in the global economy right now and a twenty 33 00:01:44,440 --> 00:01:48,040 Speaker 3: five point YEP let's deliver it from the RBA. Let's 34 00:01:48,080 --> 00:01:50,960 Speaker 3: sort of have cautious language after it to say that 35 00:01:50,960 --> 00:01:52,560 Speaker 3: we're not not a slam duck, that we're going to 36 00:01:52,600 --> 00:01:54,520 Speaker 3: get another one. But you know, we do need to 37 00:01:54,520 --> 00:01:58,440 Speaker 3: have monetary policy contributing a bit more to better economic 38 00:01:58,480 --> 00:02:01,000 Speaker 3: times rather than putting a squeez on the economy when 39 00:02:01,400 --> 00:02:05,480 Speaker 3: growth is weak and inflations at or slightly below the 40 00:02:05,880 --> 00:02:06,960 Speaker 3: midpoint of the target ban. 41 00:02:07,840 --> 00:02:10,000 Speaker 1: Now it's easy to be I mean a hind. 42 00:02:10,080 --> 00:02:13,200 Speaker 2: Time's twenty twenty, So when we talk about the Reserve Bank, 43 00:02:13,320 --> 00:02:16,400 Speaker 2: it's easy to say they were too slow lifting rates. 44 00:02:17,480 --> 00:02:19,360 Speaker 2: Now that we're on the other side of it, have 45 00:02:19,480 --> 00:02:21,320 Speaker 2: they been too slow to drop rates? 46 00:02:22,080 --> 00:02:25,800 Speaker 3: Look, I think the argument is that probably, but it's 47 00:02:25,880 --> 00:02:28,959 Speaker 3: not a fatal error because they can catch up relatively quickly. 48 00:02:28,960 --> 00:02:31,760 Speaker 3: So if it would have been nice to have interestrates 49 00:02:31,800 --> 00:02:34,160 Speaker 3: a little bit more accommodated right now, particularly in the 50 00:02:34,240 --> 00:02:36,360 Speaker 3: light as I said of those economic growth numbers and 51 00:02:36,400 --> 00:02:39,000 Speaker 3: the inflation numbers, that they're the proof of the pudding. 52 00:02:39,040 --> 00:02:40,560 Speaker 3: So if you want to work out whether the Reserve 53 00:02:40,600 --> 00:02:43,360 Speaker 3: Bank's done too much or too little on interest rates, 54 00:02:43,400 --> 00:02:47,240 Speaker 3: look at growth, unemployment, and inflation. And when they were 55 00:02:47,280 --> 00:02:50,799 Speaker 3: slow to hike in the prior cycle. Yeah, we saw 56 00:02:50,919 --> 00:02:53,760 Speaker 3: inflation hit eight percent. Yeah, we saw unemployment four to 57 00:02:53,840 --> 00:02:57,040 Speaker 3: three point four percent. We saw economic growth spike to 58 00:02:57,080 --> 00:02:59,520 Speaker 3: five percent. So that tells me that they're too slow. 59 00:03:00,120 --> 00:03:02,320 Speaker 3: Now we've got the inverse. But as I said, they 60 00:03:02,360 --> 00:03:05,160 Speaker 3: can catch up. So if they cut tomorrow, they cut 61 00:03:05,160 --> 00:03:08,160 Speaker 3: again in August, they cut again in October. As the 62 00:03:08,200 --> 00:03:11,040 Speaker 3: market is pricing and not just me shouting from the rooftop, 63 00:03:11,040 --> 00:03:13,560 Speaker 3: it's the market pricing in these things. We'll have a 64 00:03:13,600 --> 00:03:16,720 Speaker 3: cachete of three percent, maybe a little bit less early 65 00:03:16,800 --> 00:03:18,560 Speaker 3: in twenty twenty six, and I think that will be 66 00:03:18,560 --> 00:03:20,400 Speaker 3: the sort of stuff that will sort of turn the 67 00:03:20,400 --> 00:03:22,760 Speaker 3: economy around, give it a bit of a kick start. 68 00:03:22,840 --> 00:03:26,720 Speaker 3: See us consumers spending a bit more and vitally important, 69 00:03:27,080 --> 00:03:31,080 Speaker 3: seeing the business sector have some confidence to invest in 70 00:03:31,160 --> 00:03:33,720 Speaker 3: cap x, artificial intelligence technology and all these things that 71 00:03:33,720 --> 00:03:34,920 Speaker 3: are going to make us more productive. 72 00:03:35,200 --> 00:03:38,760 Speaker 2: Sixty four dollars, question Steven, what's the right level of 73 00:03:38,840 --> 00:03:41,240 Speaker 2: interest rates? What's the neutral level? The level that you 74 00:03:41,320 --> 00:03:43,080 Speaker 2: want in the Goldilocks level. 75 00:03:43,240 --> 00:03:45,800 Speaker 3: Only sixty four dollars? I want sixty four men, if 76 00:03:45,840 --> 00:03:49,240 Speaker 3: I get that one, Look, we know that it's in 77 00:03:49,280 --> 00:03:51,840 Speaker 3: the low three is. Without pinpointing too many decimal points, 78 00:03:51,880 --> 00:03:56,240 Speaker 3: we know that about three maybe three and a quarter percent. 79 00:03:56,880 --> 00:04:00,240 Speaker 3: Know it's about the level that's sort of the one 80 00:04:00,280 --> 00:04:03,920 Speaker 3: that's sort of good for encouraging a little bit of investment, 81 00:04:03,960 --> 00:04:05,640 Speaker 3: a little bit of spending, a little bit of borrowing. 82 00:04:06,240 --> 00:04:10,240 Speaker 3: It's also not so low as to see that part 83 00:04:10,280 --> 00:04:13,360 Speaker 3: of the economy overheat, and as the RBA even acknowledge. 84 00:04:13,400 --> 00:04:15,720 Speaker 3: You know, Michelle Bullockwin her last press conference of that 85 00:04:15,760 --> 00:04:18,080 Speaker 3: six or seven weeks ago, said that monetary policy with 86 00:04:18,120 --> 00:04:20,800 Speaker 3: a cash rate currently at three point eight five percent 87 00:04:21,200 --> 00:04:24,640 Speaker 3: is restrictive, that is, is putting more downside pressure on 88 00:04:24,680 --> 00:04:27,839 Speaker 3: the economy than upside pressure on the economy. So that's 89 00:04:27,880 --> 00:04:29,960 Speaker 3: why we economists are saying, look, they've got to get 90 00:04:29,960 --> 00:04:32,960 Speaker 3: to neutral because the economy is still pretty subdued. So 91 00:04:33,040 --> 00:04:35,359 Speaker 3: that says to me that we need fifty points of 92 00:04:35,360 --> 00:04:38,320 Speaker 3: cuts roughly to get to neutral. And then if we 93 00:04:38,360 --> 00:04:40,480 Speaker 3: want to stimulate the economy, like if we get to 94 00:04:40,520 --> 00:04:42,279 Speaker 3: the end of this year in GDP grades still only 95 00:04:42,600 --> 00:04:45,200 Speaker 3: you know, one point seventy five percent of inflations at 96 00:04:45,240 --> 00:04:48,800 Speaker 3: two point zero percent or thereabouts, and the unemployment rates 97 00:04:48,839 --> 00:04:50,320 Speaker 3: creeping up, then we might need to move to a 98 00:04:50,360 --> 00:04:54,400 Speaker 3: commodative interest rates, which is a cash rate below three percent. 99 00:04:55,160 --> 00:04:57,159 Speaker 1: How long we been doing this show, Steven, you and 100 00:04:57,200 --> 00:04:58,560 Speaker 1: I three years? 101 00:04:59,000 --> 00:05:01,440 Speaker 3: Probably that it's a long time, isn't it. 102 00:05:01,800 --> 00:05:03,960 Speaker 2: I reckon this is the most exciting show we have 103 00:05:04,240 --> 00:05:08,120 Speaker 2: ever done, because previously we're talking about raid hikes, maybe 104 00:05:08,240 --> 00:05:11,719 Speaker 2: rate cuts. You are saying, rate cut tomorrow, rate cut 105 00:05:11,920 --> 00:05:14,479 Speaker 2: the next month, rate cut later in the year, So 106 00:05:14,600 --> 00:05:17,159 Speaker 2: that's three in all likelihood. 107 00:05:16,839 --> 00:05:18,520 Speaker 3: On top of the two that we've already seen. Don't forget, 108 00:05:18,520 --> 00:05:20,520 Speaker 3: we've already had two rate cuts. They cut in February 109 00:05:20,520 --> 00:05:23,400 Speaker 3: and they cut in May. They paused in April for 110 00:05:23,400 --> 00:05:26,440 Speaker 3: whatever reason. So by the time that we have our 111 00:05:26,560 --> 00:05:29,520 Speaker 3: weak ahead in first week of January, for example, if 112 00:05:29,520 --> 00:05:32,720 Speaker 3: we could fast forward to that version, we'll probably have 113 00:05:32,800 --> 00:05:36,080 Speaker 3: interstrates down one hundred and twenty five basis points from 114 00:05:36,080 --> 00:05:39,279 Speaker 3: where they were. And when people put that into their 115 00:05:39,839 --> 00:05:43,240 Speaker 3: either mortgage calculator or their repayment schedule, people with a 116 00:05:43,320 --> 00:05:46,480 Speaker 3: chunky devil are under a huge amount of pressure. They're 117 00:05:46,480 --> 00:05:49,080 Speaker 3: going to be seeing multiple hundreds of dollars a month 118 00:05:49,360 --> 00:05:52,840 Speaker 3: off their repayment schedule, which is multiple hundred dollars per 119 00:05:52,880 --> 00:05:55,440 Speaker 3: month which is available for spending. And at a time. 120 00:05:55,480 --> 00:05:58,680 Speaker 3: Don't forget this, Sean that while this year's passed and 121 00:05:58,720 --> 00:06:02,280 Speaker 3: we're traversing this twelve period, wages have been growing by 122 00:06:02,440 --> 00:06:04,520 Speaker 3: three to three and a half percent, So actually we're 123 00:06:04,520 --> 00:06:06,600 Speaker 3: getting a little bit of extra incomebany, not a boom 124 00:06:06,640 --> 00:06:08,560 Speaker 3: in wages, but there's a little bit more income coming 125 00:06:08,560 --> 00:06:11,679 Speaker 3: in for most people with the wage increase their debt 126 00:06:11,920 --> 00:06:15,200 Speaker 3: burden's gone down. I won't say happy days a here again, 127 00:06:15,279 --> 00:06:18,520 Speaker 3: but that's how that's how you manage an economy, and 128 00:06:18,560 --> 00:06:21,200 Speaker 3: the Reserve Bank are doing that. Yees. So this is 129 00:06:21,200 --> 00:06:23,560 Speaker 3: a quite exciting time that we should be getting set 130 00:06:23,600 --> 00:06:28,680 Speaker 3: for twenty twenty six. Yeah, it's got the preconditions for 131 00:06:28,760 --> 00:06:30,000 Speaker 3: a pretty good year. 132 00:06:30,360 --> 00:06:31,960 Speaker 1: Fantastic, Stephen, enjoy your week. 133 00:06:32,320 --> 00:06:32,800 Speaker 3: Thanks, Jean. 134 00:06:33,080 --> 00:06:35,279 Speaker 1: There's economist Stephen Coucola's beener, known as the Kok. 135 00:06:35,360 --> 00:06:37,120 Speaker 2: You can find him at the cook dot com and 136 00:06:37,279 --> 00:06:39,960 Speaker 2: follow him on X using the handle the Kirk. I'm 137 00:06:40,000 --> 00:06:43,040 Speaker 2: Sean Almer and this is hearing greeed the week Ahead.