1 00:00:03,560 --> 00:00:05,760 Speaker 1: Welcome to Ask Fear and Greed, where we take your 2 00:00:05,840 --> 00:00:08,400 Speaker 1: questions and do our best to answer them. I'm Adam Lang, 3 00:00:08,400 --> 00:00:10,040 Speaker 1: and good afternoon, Sean Almer. 4 00:00:10,320 --> 00:00:11,640 Speaker 2: Good afternoon, Adam Lang. 5 00:00:12,200 --> 00:00:16,200 Speaker 1: Sean. Today's question is from Charlie. It came by Instagram 6 00:00:16,280 --> 00:00:18,680 Speaker 1: and it's a simple question. But I'm guessing it's not 7 00:00:18,720 --> 00:00:22,000 Speaker 1: so simple to answer it, says Hi. Sean and Michael 8 00:00:22,040 --> 00:00:24,800 Speaker 1: love the show. Why is it that the Reserve Bank 9 00:00:24,840 --> 00:00:27,920 Speaker 1: Governor Michelle Bullock says that interest rates won't fall until 10 00:00:27,920 --> 00:00:31,680 Speaker 1: at least next year, Yet financial markets and some economists 11 00:00:31,720 --> 00:00:34,360 Speaker 1: don't seem to believe her. They say rates will fall 12 00:00:34,520 --> 00:00:35,040 Speaker 1: this year. 13 00:00:36,560 --> 00:00:40,400 Speaker 2: Hmm. A very good question, and Charlie, you are right, 14 00:00:41,280 --> 00:00:45,839 Speaker 2: not an easy one to answer. So let's think about this. 15 00:00:45,920 --> 00:00:49,520 Speaker 2: The basic difference between what Michelle Bullock thinks and what 16 00:00:49,600 --> 00:00:53,800 Speaker 2: bond markets and some economists think is how fast inflation 17 00:00:54,120 --> 00:00:57,520 Speaker 2: is falling. Now, you would think that the Reserve Bank, 18 00:00:57,560 --> 00:01:00,800 Speaker 2: with all its brain power and economists and you know, 19 00:01:00,960 --> 00:01:02,880 Speaker 2: Excel spreadsheets, out of all the stuff that you. 20 00:01:03,000 --> 00:01:07,479 Speaker 1: Like, all there so much data, so much you think that. 21 00:01:07,360 --> 00:01:10,080 Speaker 2: It would be best placed to forecast. And remember it 22 00:01:10,120 --> 00:01:13,319 Speaker 2: is actually only a forecast, best place to forecast when 23 00:01:13,360 --> 00:01:17,440 Speaker 2: inflation will fall enough for the Central Bank to be 24 00:01:17,600 --> 00:01:21,440 Speaker 2: confident that it's heading towards and will sustainably sit within 25 00:01:22,120 --> 00:01:25,840 Speaker 2: the two to three percent target band. Now I always 26 00:01:25,880 --> 00:01:27,600 Speaker 2: thought that, to be honest, I always just back to 27 00:01:27,640 --> 00:01:30,880 Speaker 2: Reserve Bank. The credibility did get a bit of a hit, 28 00:01:31,160 --> 00:01:34,240 Speaker 2: actually a massive hit in twenty twenty two, when former 29 00:01:34,560 --> 00:01:38,279 Speaker 2: Reserve Bank Governor Phil Though said rates wouldn't rise until 30 00:01:38,360 --> 00:01:42,280 Speaker 2: twenty twenty four. Then inflation took off, so too did 31 00:01:42,360 --> 00:01:44,800 Speaker 2: interest rates. That was twenty twenty two Central Bank when 32 00:01:44,800 --> 00:01:49,880 Speaker 2: it's fastest hiking phase in thirty years. Plenty of people 33 00:01:50,840 --> 00:01:55,520 Speaker 2: personal experience up to their mortgages. Others took out new mortgages. 34 00:01:55,600 --> 00:02:00,400 Speaker 2: Our renovations do good, the big costly. Now though rates 35 00:02:00,440 --> 00:02:04,200 Speaker 2: wouldn't rise, but of course they did. The Reserve Bank's 36 00:02:04,240 --> 00:02:08,359 Speaker 2: credibility really took a hit. So now financial markets which 37 00:02:08,400 --> 00:02:10,080 Speaker 2: have priced in a rate cut later this year, and 38 00:02:10,120 --> 00:02:13,359 Speaker 2: many economists are effectively saying, we think the Reserve Bank 39 00:02:13,400 --> 00:02:16,440 Speaker 2: is wrong again. We think it will be forced to 40 00:02:16,480 --> 00:02:20,480 Speaker 2: cut rates in twenty twenty four November. Let's say, now 41 00:02:20,560 --> 00:02:23,160 Speaker 2: the Reserve Bank can do whatever it wants. It can 42 00:02:23,240 --> 00:02:25,320 Speaker 2: go no, no, no, we said we're not going to, 43 00:02:25,360 --> 00:02:27,959 Speaker 2: so we won't. But by law it's supposed to keep 44 00:02:28,000 --> 00:02:31,360 Speaker 2: inflation down and try and achieve full employment. That's what 45 00:02:31,400 --> 00:02:33,639 Speaker 2: it's legislated to do. Now at the moment, it's really 46 00:02:33,639 --> 00:02:36,519 Speaker 2: worried about inflation. Michelle Bullock says, the best thing it 47 00:02:36,560 --> 00:02:38,760 Speaker 2: can do is get on top of inflation fair enough. 48 00:02:39,240 --> 00:02:41,480 Speaker 2: But if the economy carts it, and that is a 49 00:02:41,520 --> 00:02:45,239 Speaker 2: real possibility. That's a technical economics term and cark. 50 00:02:45,240 --> 00:02:47,160 Speaker 1: Not often used, but a very good tim No. 51 00:02:47,000 --> 00:02:49,520 Speaker 2: No, no, yeah, but everyone knows what I'm talking about. Well, 52 00:02:49,520 --> 00:02:51,400 Speaker 2: the Reserve Bank will have to cut rates. Now if 53 00:02:51,440 --> 00:02:55,960 Speaker 2: inflation falls, it will cut rates. But inflation falls faster 54 00:02:56,040 --> 00:02:58,320 Speaker 2: than we filt. We got those inflation monthly inflation figures 55 00:02:58,400 --> 00:03:02,000 Speaker 2: last week which were promising that they will cut rates. 56 00:03:02,000 --> 00:03:04,640 Speaker 2: Because the neutral level of interest rates, where rates aren't 57 00:03:04,639 --> 00:03:08,000 Speaker 2: helping or hindering the economy, is certainly somewhere south of 58 00:03:08,040 --> 00:03:11,000 Speaker 2: what the benchmark rate is today. So benchmark rate four 59 00:03:11,040 --> 00:03:13,160 Speaker 2: point three five percent, pain seven percent on your home lane, 60 00:03:14,240 --> 00:03:17,400 Speaker 2: it's less than that. That's neither hindering or helping the economy. 61 00:03:17,440 --> 00:03:20,560 Speaker 2: So rates will come down eventually. It's all about the timing. 62 00:03:20,760 --> 00:03:22,640 Speaker 2: I actual think the real surprise and all this given 63 00:03:22,639 --> 00:03:25,720 Speaker 2: the experience of Phil Low, is that Michelle Bullock actually 64 00:03:25,800 --> 00:03:28,600 Speaker 2: put a timeline on interest rates because she's not going 65 00:03:28,639 --> 00:03:31,960 Speaker 2: to look great if in November the Reserve Bank is 66 00:03:32,000 --> 00:03:36,960 Speaker 2: forced to cut interest rate. Short answer, the difference between 67 00:03:37,000 --> 00:03:40,400 Speaker 2: what Michelle Bullock's saying and what market's saying is people's 68 00:03:40,400 --> 00:03:41,720 Speaker 2: forecast on inflation. 69 00:03:42,560 --> 00:03:46,440 Speaker 1: So, Sean, it really is a different of expert opinion 70 00:03:46,480 --> 00:03:48,120 Speaker 1: and data, isn't it. It is? 71 00:03:48,200 --> 00:03:49,360 Speaker 2: And that's exactly right. 72 00:03:49,440 --> 00:03:53,640 Speaker 1: Yes, it's a great question and a ripper of an answer. Sean, 73 00:03:53,960 --> 00:03:56,120 Speaker 1: thank you, better you having to answer it than me. 74 00:03:56,920 --> 00:03:58,080 Speaker 2: Thanks Charlie for the question. 75 00:03:58,160 --> 00:04:00,640 Speaker 1: I say thank you Charlie, and remember, if you've got 76 00:04:00,640 --> 00:04:02,680 Speaker 1: something you'd like to know, then send through your question 77 00:04:02,760 --> 00:04:06,240 Speaker 1: on LinkedIn, Instagram, Facebook, or at Fearangreed dot com dot au. 78 00:04:06,800 --> 00:04:09,280 Speaker 1: I'm Adam Lang and this is ask Fear and Greed.