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Speaker 1: Welcome to Ask Fear and Greed, where we answer questions

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Speaker 1: about business, investing, economics, politics and more. I'm Michael Thompson

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Speaker 1: and hello, Sean Aleman, Michael Sean. Every now and then

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Speaker 1: ask Fear and Greed. It's an opportunity for a listener

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Speaker 1: to get something off their chest. Yes, and Wesley has

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Speaker 1: done this today. He's written to us on LinkedIn, right,

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Speaker 1: and he says he's a little bit cynical. Okay, I'll

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Speaker 1: just preface it with that, Okay. Wesley says, why do

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Speaker 1: we have the RBA? We believe in free markets. The

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Speaker 1: bond market sets interest rates, forecasts are never correct, predictions

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Speaker 1: of wage price spirals never materialize, contradictory statements of we

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Speaker 1: are data driven, we don't see that in our model

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Speaker 1: slash forecast, and finally only reaching their mandate once in

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Speaker 1: a decade of both core and headline inflation in the

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Speaker 1: target range. Why do we have the RBA? I'm guessing

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Speaker 1: Wesley feels a bit better now.

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Speaker 2: Such cynicism, Wesley, Such cynicism, I mean, it's a good

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Speaker 2: It's an interesting question where he's not one hundred percent right.

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Speaker 2: I don't have the question in front of me, is

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Speaker 2: about who sets interest rates. Bond market set interest rates.

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Speaker 2: So bond markets set interest rate off a benchmark rate,

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Speaker 2: which we know is a cash rate which the Reserve

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Speaker 2: Bank sets. The bond market, particularly Australian government bonds, very

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Speaker 2: much relies on that cash rate, and so the safest

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Speaker 2: investment you can get in the bond market or Australian

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Speaker 2: government bonds, and the next they're called semi so their

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Speaker 2: state government bonds, and then you might have come off

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Speaker 2: bank bonds. Then you go out the yield curve. So

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Speaker 2: in a sense that the bond markets don't set interest rates.

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Speaker 2: But broadly, why do we have an independent central bank

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Speaker 2: history in Australia it was sort of de facto independent

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Speaker 2: by the Hawk government in the early nineteen eighties under deregulation.

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Speaker 2: I think it was ninety six that Pete Coxcello made

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Speaker 2: it form. The reason we have an independent reserve bank

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Speaker 2: is that we don't trust the politicians to do it, okay,

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Speaker 2: So what they do is set interest rates, and the

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Speaker 2: Reserve Bank's goal two things are full employment and price stability.

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Speaker 2: They use interest rates to get full employment, which we're

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Speaker 2: sort of about now, and price stability, which is keep

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Speaker 2: inflation low. If you left that to the government, and

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Speaker 2: we're seeing this in the US, we'll go there in

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Speaker 2: a moment. If you left that to government, politics comes

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Speaker 2: into it. And why One of the great reasons that,

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Speaker 2: I mean, one of the reasons that Australia has had

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Speaker 2: such a great run for decades is the Independent Reserve

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Speaker 2: Bank not really being influenced by politicians about how to

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Speaker 2: run the economy. So they can have long term economic goals.

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Speaker 2: They don't have an electoral cycle. They know they've got

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Speaker 2: to keep employment as strong as you can.

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Speaker 1: Are you saying that politicians don't necessarily act in the

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Speaker 1: best interests of the long term economy.

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Speaker 2: Shot, surely not. I mean, so all this criticism at

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Speaker 2: the moment from Donald Trump over j Powell the US

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Speaker 2: FED saying he should be cunning interest rates. If Donald

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Speaker 2: Trump was to run the US FED as president, he'd say,

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Speaker 2: cut interestrates. We're going to cut one percent off. Darry

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Speaker 2: about it, and you would have rampant inflation, which would

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Speaker 2: hit US as well. But you'd have rampant inflation in

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Speaker 2: the US that would hit all sorts of other economies.

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Speaker 2: Because Donald Trump wants to supercharge economies. That's fine, But

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Speaker 2: with that comes inflation. So I wouldn't trust Donald Trump

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Speaker 2: to run the Federal Reserve. And it's the same here,

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Speaker 2: I wouldn't trust Anthony Albernezi or Susan Lee to run

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Speaker 2: the Reserve Bank. The Reserve Bank is a sort of professionals,

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Speaker 2: that's what they do for a living. It also gives

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Speaker 2: us a lot of credibility and trust. So when you've

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Speaker 2: got an independent reserve bank, people investing in Australia think, well,

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Speaker 2: they've actually got a monetary policy is set by people

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Speaker 2: who are worried about the economy. You know that, you

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Speaker 2: have the whole separation of powers argument as well, like

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Speaker 2: better accountability. So lots of good reasons for an independent

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Speaker 2: reserve bank.

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Speaker 1: What about Wesley's comment that forecasts are never correct, That's

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Speaker 1: not necessarily the case. I mean, they can often be

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Speaker 1: fairly wide of where we end up, but it's also

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Speaker 1: subject to conditions that are constantly changing.

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Speaker 2: Right, the trend is your friend, Weasiley, The trend is

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Speaker 2: your friend. So what I mean? You know, a forecast

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Speaker 2: gives you a number, but at the end of the day,

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Speaker 2: it's kind of the direction that matters, I think, And

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Speaker 2: so long as it's not wildly wrong. And the Reserve

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Speaker 2: Bank has been wildly wrong at times, and we saw

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Speaker 2: that when they decided to lift interest thrates really quickly

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Speaker 2: a few years back. That's because its forecasts were wildly wrong.

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Speaker 2: But generally they're not wildly wrong.

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Speaker 1: Do you think that things like that, the declaration that

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Speaker 1: we wouldn't see interest rate cuts until twenty increases until

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Speaker 1: twenty twenty four at the earliest, do you reckon that

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Speaker 1: has perhaps encouraged this kind of view from people like Wesley.

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Speaker 1: That has damaged the almost the credibility a little the forecast.

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Speaker 2: It did damage the credibility without a doubt, and not

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Speaker 2: even a little bit a lot, okay, because Reserve Bank

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Speaker 2: got it so wrong. But I think broadly we think

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Speaker 2: the Reserve Bank does a good job in Australia. It

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Speaker 2: sets the economic premise to work under its credibility. It's

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Speaker 2: got long term economic goals. All in all, independent central bank,

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Speaker 2: good thing. Sorry, where you know what?

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Speaker 1: I like Wesley's question?

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Speaker 2: I like the question.

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Speaker 1: Yeah, I mean, and this is a safe place to

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Speaker 1: be cynical. Yes, a very safe place, Wesley. We appreciate

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Speaker 1: a cynical question. We appreciate any question if you want

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Speaker 1: to send one in like Wesley's done. LinkedIn's a great

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Speaker 1: place to do it, Facebook, Instagram, Fear and Greed dot com,

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Speaker 1: tod au, head to our website and send it on

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Speaker 1: through there.

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Speaker 2: Thanks Sean, Thank you. Michael.

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Speaker 1: I'm Michael Thompson and this is asked fair and great