1 00:00:03,420 --> 00:00:05,960 Sean Alymer: Welcome to the Fear And Greed daily interview. I'm Sean 2 00:00:05,960 --> 00:00:09,420 Sean Alymer: Alymer. Yesterday saw one of the most anticipated Reserve Bank 3 00:00:09,420 --> 00:00:12,920 Sean Alymer: board meetings in years. Following the US Fed’s declaration, that 4 00:00:12,920 --> 00:00:15,930 Sean Alymer: rates would start rising soon in the world's biggest economy, 5 00:00:16,290 --> 00:00:18,660 Sean Alymer: there was a lot of anticipation and perhaps pressure on 6 00:00:18,660 --> 00:00:21,610 Sean Alymer: the Reserve Bank to bring forward its own interest rate 7 00:00:21,650 --> 00:00:24,720 Sean Alymer: guidance, but the central bank made it pretty clear. It 8 00:00:24,720 --> 00:00:28,380 Sean Alymer: would remain patient before doing anything about the official cash 9 00:00:28,380 --> 00:00:31,220 Sean Alymer: rate. In fact, there was little suggestion that the bank 10 00:00:31,220 --> 00:00:34,860 Sean Alymer: will do anything this year. It did end its 350 11 00:00:34,860 --> 00:00:37,650 Sean Alymer: billion bond buying program, which will free up long term 12 00:00:37,650 --> 00:00:40,530 Sean Alymer: rates. At least let them rise anyway to help us 13 00:00:40,530 --> 00:00:42,870 Sean Alymer: make sense of it all. We're joined today by Alan 14 00:00:42,870 --> 00:00:45,760 Sean Alymer: Oster, chief economist at national Australia bank. Alan, welcome back 15 00:00:45,760 --> 00:00:46,131 Sean Alymer: to fear and greed. 16 00:00:46,131 --> 00:00:46,481 Alan Oster: Thank you very much, always pleased to come back. 17 00:00:49,830 --> 00:00:54,370 Sean Alymer: Thank you. So what do you make of the meeting yesterday? Were you surprised 18 00:00:54,480 --> 00:00:55,560 Sean Alymer: at what the bank said? 19 00:00:55,990 --> 00:00:59,460 Alan Oster: Short answer is no. What they've essentially done, as they've 20 00:00:59,460 --> 00:01:03,440 Alan Oster: said, look, inflation's a bit higher where we expected to be, 21 00:01:03,750 --> 00:01:07,840 Alan Oster: but is nowhere near where you would need to be 22 00:01:07,840 --> 00:01:11,700 Alan Oster: to start us changing rates. They said wages are also 23 00:01:11,750 --> 00:01:16,050 Alan Oster: quite moderate and it'll take a while. They've basically they've 24 00:01:16,050 --> 00:01:20,070 Alan Oster: reduced their GDP numbers, but they have given themselves some, 25 00:01:20,400 --> 00:01:23,970 Alan Oster: basically some room, I suppose, in case things get better 26 00:01:24,280 --> 00:01:27,709 Alan Oster: or worse than expected that they might start doing something. 27 00:01:27,709 --> 00:01:31,210 Alan Oster: We have the first rate rises in November and December 28 00:01:31,740 --> 00:01:35,140 Alan Oster: and are having looked at that statement. Nothing's changed. 29 00:01:35,420 --> 00:01:39,590 Sean Alymer: The bank does talk about inflation being higher for quarters. 30 00:01:39,760 --> 00:01:40,000 Alan Oster: Yeah. 31 00:01:40,040 --> 00:01:43,780 Sean Alymer: Plural. I mean, underlying inflation last quarter was 2.6. You get 32 00:01:43,780 --> 00:01:45,920 Sean Alymer: another sort of six months down the track, you get 33 00:01:46,069 --> 00:01:50,140 Sean Alymer: higher levels of inflation. Is that what we need? And 34 00:01:50,310 --> 00:01:52,360 Sean Alymer: when I read that yesterday, I thought I'm not so 35 00:01:52,360 --> 00:01:54,560 Sean Alymer: sure actually that they're even saying this year. I suppose 36 00:01:54,560 --> 00:01:54,990 Sean Alymer: that's my point. 37 00:01:55,420 --> 00:01:59,470 Alan Oster: Well, yeah. I think the risks are November or maybe 38 00:01:59,470 --> 00:02:02,919 Alan Oster: February. What they're basically saying is if you assume that 39 00:02:02,920 --> 00:02:06,450 Alan Oster: you're going to still have reasonably high core inflation and 40 00:02:06,450 --> 00:02:10,350 Alan Oster: there's reasons to expect that given the technical nature of 41 00:02:10,350 --> 00:02:13,269 Alan Oster: what they do in large senses, a large bit of 42 00:02:13,270 --> 00:02:16,300 Alan Oster: the trim mean is actually occupied by the increase in 43 00:02:16,300 --> 00:02:18,420 Alan Oster: owner occupy cost of housing. 44 00:02:18,770 --> 00:02:18,800 Sean Alymer: Right. 45 00:02:18,940 --> 00:02:21,380 Alan Oster: So, a lot of the trim gets taken out by 46 00:02:21,380 --> 00:02:26,399 Alan Oster: one item. So our forecast would have core inflation at three- 47 00:02:26,400 --> 00:02:32,139 Alan Oster: two by September, but like the RBA, once you get 48 00:02:32,139 --> 00:02:36,240 Alan Oster: the other side of the economy operating more normally otherwise 49 00:02:36,240 --> 00:02:39,040 Alan Oster: living with the virus, you have more people coming in 50 00:02:39,430 --> 00:02:42,430 Alan Oster: and some of those tensions might erode away a bit. 51 00:02:42,450 --> 00:02:45,990 Alan Oster: So I think this was, and we'll hear more from 52 00:02:45,990 --> 00:02:50,339 Alan Oster: Phil Lowe today in relation to his speech. And then 53 00:02:50,340 --> 00:02:52,930 Alan Oster: on Friday they put out their forecast. But I think 54 00:02:53,410 --> 00:02:57,060 Alan Oster: the idea is, well, it could be late 22, maybe 55 00:02:57,070 --> 00:02:59,910 Alan Oster: 23, but we're going to sit around and wait for 56 00:02:59,910 --> 00:03:00,679 Alan Oster: a while. Guys. 57 00:03:01,050 --> 00:03:03,900 Sean Alymer: Certainly they've dropped their 2024 commentary. 58 00:03:04,490 --> 00:03:04,510 Alan Oster: Yeah. 59 00:03:04,510 --> 00:03:07,300 Sean Alymer: They're clearly they're thinking about it. What about the wages 60 00:03:07,300 --> 00:03:11,380 Sean Alymer: story? Because they do seem reasonably (inaudible) about wages, 61 00:03:11,630 --> 00:03:13,230 Sean Alymer: not withstanding the anecdotal evidence. 62 00:03:13,560 --> 00:03:17,820 Alan Oster: Well they're (inaudible) focused on wages. What's happening in 63 00:03:17,820 --> 00:03:20,930 Alan Oster: the fundamental senses is that because you don't have as 64 00:03:20,930 --> 00:03:25,419 Alan Oster: many people actually in the country there's shortages and we're 65 00:03:25,419 --> 00:03:27,770 Alan Oster: going to put out something on Thursday on a quarterly 66 00:03:27,770 --> 00:03:32,160 Alan Oster: business survey where the highest of all time employees saying 67 00:03:32,490 --> 00:03:35,350 Alan Oster: they're finding it difficult to get suitable labor. So they're 68 00:03:35,350 --> 00:03:38,070 Alan Oster: saying it's almost impossible to get people. And so there 69 00:03:38,070 --> 00:03:42,680 Alan Oster: is elements in some sectors where you're seeing essentially employers 70 00:03:43,070 --> 00:03:45,900 Alan Oster: increasing wages to try and get them, but it's not 71 00:03:45,900 --> 00:03:50,930 Alan Oster: everywhere. We do expect to see essentially wages growth in 72 00:03:50,930 --> 00:03:54,440 Alan Oster: the next couple of quarters up around two and three 73 00:03:54,450 --> 00:03:58,060 Alan Oster: quarters percent, maybe three, which is where the reserve bank 74 00:03:58,060 --> 00:03:59,631 Alan Oster: is sort of expecting as well. 75 00:03:59,630 --> 00:04:00,020 Sean Alymer: Yep. 76 00:04:00,290 --> 00:04:02,040 Alan Oster: But what they're saying is once you get the other 77 00:04:02,040 --> 00:04:07,070 Alan Oster: side of the normalization of the economy, then things might 78 00:04:07,120 --> 00:04:10,850 Alan Oster: ease back a bit. So wages is, if you like 79 00:04:11,250 --> 00:04:13,920 Alan Oster: the one thing you need to get growth up around 80 00:04:13,920 --> 00:04:18,650 Alan Oster: three or thereabouts, once you get rid of the idea 81 00:04:18,650 --> 00:04:22,210 Alan Oster: that you have temporary short term increases inflation because of 82 00:04:22,210 --> 00:04:26,100 Alan Oster: things like petrol prices and (crosstalk) owner occupied costs, etc. 83 00:04:26,480 --> 00:04:30,971 Sean Alymer: Hence the focus on wages every time the reserve bank speaks. 84 00:04:30,971 --> 00:04:30,972 Alan Oster: Yep. 85 00:04:30,972 --> 00:04:33,690 Sean Alymer: What about the bond buying program ending that? What does it 86 00:04:33,690 --> 00:04:35,900 Sean Alymer: actually mean in real terms for most of us who 87 00:04:35,900 --> 00:04:37,680 Sean Alymer: take out loans, does it mean that much? 88 00:04:38,180 --> 00:04:42,230 Alan Oster: Short answer, not a lot. It mean is that they're looking 89 00:04:42,230 --> 00:04:45,880 Alan Oster: at what other economies around the world or central banks 90 00:04:45,880 --> 00:04:48,540 Alan Oster: around the world are doing. Most of them are finishing. 91 00:04:48,870 --> 00:04:52,039 Alan Oster: And so therefore they don't need to keep buying the bonds. It's 92 00:04:52,040 --> 00:04:53,970 Alan Oster: a sort of another way to keep the currency low. 93 00:04:54,580 --> 00:04:57,010 Alan Oster: But if they're not buying the bonds, there's less support 94 00:04:57,010 --> 00:05:00,619 Alan Oster: for the bonds. And therefore the costs of two to 95 00:05:00,620 --> 00:05:04,219 Alan Oster: three year loans for banks, if you like goes up 96 00:05:04,220 --> 00:05:07,500 Alan Oster: because the market all around the globe is pricing in, 97 00:05:07,560 --> 00:05:11,529 Alan Oster: increases in rates. And they've been artificially keeping the long 98 00:05:11,529 --> 00:05:14,360 Alan Oster: bond lower by buying it and they're stopped doing that. 99 00:05:15,120 --> 00:05:17,400 Sean Alymer: So what do they do with the bonds have now got 100 00:05:17,500 --> 00:05:20,349 Sean Alymer: in their portfolio? Presumably a central bank doesn't want to 101 00:05:20,350 --> 00:05:21,240 Sean Alymer: hold onto them forever. 102 00:05:21,760 --> 00:05:26,930 Alan Oster: Well, they are buying or they have been buying basically bonds 103 00:05:26,930 --> 00:05:28,280 Alan Oster: that go out two to four years. 104 00:05:28,280 --> 00:05:28,281 Sean Alymer: Yep. 105 00:05:28,281 --> 00:05:31,810 Alan Oster: And so in some ways, if they don't do anything, 106 00:05:32,170 --> 00:05:35,349 Alan Oster: those bonds just mature and they disappear. 107 00:05:35,670 --> 00:05:35,820 Sean Alymer: Yep. 108 00:05:35,920 --> 00:05:39,080 Alan Oster: But they're muttering about whether they might play around with 109 00:05:39,080 --> 00:05:42,650 Alan Oster: the portfolio in terms of it's not too lumpy, etc. 110 00:05:43,190 --> 00:05:46,370 Alan Oster: But I think in the big picture, it's not really a 111 00:05:46,370 --> 00:05:49,490 Alan Oster: lot of policy other than to the extent that there's 112 00:05:49,880 --> 00:05:53,529 Alan Oster: less support for the fixed cost of borrowing money. It 113 00:05:53,529 --> 00:05:57,039 Alan Oster: is a slight tightening, but it's not anything like interest 114 00:05:57,040 --> 00:05:57,440 Alan Oster: rates 115 00:05:57,730 --> 00:05:59,580 Sean Alymer: Stay with me, Alan, we'll be back in a minute. 116 00:06:04,140 --> 00:06:06,609 Sean Alymer: My guest this morning is national Australia bank, chief economist, 117 00:06:06,690 --> 00:06:10,080 Sean Alymer: Alan Oster. Now you mentioned the economic forecast and the 118 00:06:10,080 --> 00:06:12,910 Sean Alymer: downgraded growth slightly will hear, as you mentioned that more 119 00:06:12,910 --> 00:06:16,409 Sean Alymer: from Phil Lowe today. And then on Friday, the semi 120 00:06:16,410 --> 00:06:18,530 Sean Alymer: annual statement on mantra policy, I think that's called it, 121 00:06:18,600 --> 00:06:21,360 Sean Alymer: which will give us the forecasts. Why do you think 122 00:06:21,360 --> 00:06:23,240 Sean Alymer: they've downgraded growth forecasts? 123 00:06:23,490 --> 00:06:28,990 Alan Oster: What they've done is they've done December on December. And 124 00:06:29,160 --> 00:06:33,409 Alan Oster: what you know is last year, December was really strong, 125 00:06:34,120 --> 00:06:36,650 Alan Oster: but we also know that we had Omicron. 126 00:06:36,810 --> 00:06:36,950 Sean Alymer: Yep. 127 00:06:37,029 --> 00:06:39,370 Alan Oster: In January. So the first quarter is going to be 128 00:06:39,370 --> 00:06:43,790 Alan Oster: quite weak on our numbers. We are expecting growth through 129 00:06:43,790 --> 00:06:46,359 Alan Oster: the year of around four and then we've taken it 130 00:06:46,360 --> 00:06:49,359 Alan Oster: back to three and a half. They've taken it from five 131 00:06:49,360 --> 00:06:51,620 Alan Oster: and a half back to four and a half. And 132 00:06:51,620 --> 00:06:53,740 Alan Oster: I think basically a little bit of reality is coming 133 00:06:53,740 --> 00:06:56,940 Alan Oster: in, but also, you've had a soft start to the 134 00:06:56,940 --> 00:07:01,289 Alan Oster: year because December was so strong. It probably means in 135 00:07:01,290 --> 00:07:04,409 Alan Oster: year average terms, which they're not talking about, the numbers 136 00:07:04,410 --> 00:07:08,010 Alan Oster: would probably go up. So it's sort of data moving 137 00:07:08,010 --> 00:07:10,840 Alan Oster: in and around according to the virus, it's not really 138 00:07:11,030 --> 00:07:15,420 Alan Oster: a fundamental change, although they did lower their growth rates 139 00:07:15,420 --> 00:07:18,700 Alan Oster: for they out use 23 a lot. So they're down 140 00:07:18,700 --> 00:07:20,170 Alan Oster: to about two and a half percent now. 141 00:07:20,560 --> 00:07:24,040 Sean Alymer: Okay. And the bank thinks that unemployment will fall below 142 00:07:24,110 --> 00:07:27,800 Sean Alymer: 4% this year, which probably isn't a huge guess, given 143 00:07:27,840 --> 00:07:29,370 Sean Alymer: that it's at 4. 2% already. 144 00:07:29,430 --> 00:07:29,520 Alan Oster: Yeah. 145 00:07:29,810 --> 00:07:30,720 Sean Alymer: But again, that's an upgrade. 146 00:07:31,120 --> 00:07:34,580 Alan Oster: It's an upgrade. So the labor market's stronger. So temporarily 147 00:07:34,580 --> 00:07:37,180 Alan Oster: you'll see unemployment go up a bit, but then goes 148 00:07:37,180 --> 00:07:39,700 Alan Oster: down a bit. So I think we're at 3. 8, 3. 149 00:07:39,700 --> 00:07:41,640 Alan Oster: 9 by the end of the year, and then you 150 00:07:41,640 --> 00:07:45,530 Alan Oster: basically stay at around three, eight or a bit lower 151 00:07:46,000 --> 00:07:48,850 Alan Oster: for the rest of the forecast period. So yeah, they're 152 00:07:48,860 --> 00:07:52,080 Alan Oster: basically saying that the labor market has done better than 153 00:07:52,080 --> 00:07:55,550 Alan Oster: we thought it won't forever continue to keep going down 154 00:07:55,550 --> 00:07:59,730 Alan Oster: in terms of unemployment, but you do need to have 155 00:08:00,380 --> 00:08:03,690 Alan Oster: unemployment below four to get wage pressure going in a 156 00:08:03,690 --> 00:08:07,370 Alan Oster: fundamental sustained sense. So, that's also important. So they're again 157 00:08:07,370 --> 00:08:10,720 Alan Oster: saying that sometime this year, which probably means late this 158 00:08:10,720 --> 00:08:14,050 Alan Oster: year, which sort of fits into our view, that rate 159 00:08:14,050 --> 00:08:17,220 Alan Oster: rises November, December probably likely. 160 00:08:17,580 --> 00:08:20,920 Sean Alymer: And the bigger risk to these forecast still, the coronavirus. 161 00:08:21,830 --> 00:08:25,570 Alan Oster: It's always the coronavirus. There's also a risk called, do 162 00:08:25,570 --> 00:08:31,440 Alan Oster: you get wars in Russia or Ukraine or Taiwan that 163 00:08:31,440 --> 00:08:33,839 Alan Oster: would sort of put the cat among the pigeons. But 164 00:08:34,070 --> 00:08:37,570 Alan Oster: I think the big risk is essentially the virus. If 165 00:08:37,570 --> 00:08:41,800 Alan Oster: you get mutations and also essentially how the economy deals 166 00:08:41,800 --> 00:08:45,110 Alan Oster: with it so far, it's been sort of dying when 167 00:08:45,679 --> 00:08:47,960 Alan Oster: they put the lockdowns on, but then sort of comes 168 00:08:47,960 --> 00:08:52,059 Alan Oster: back really quickly and everything we see suggests that Omni 169 00:08:52,059 --> 00:08:54,780 Alan Oster: Crumb's a temporary thing rather than a permanent thing, and 170 00:08:54,830 --> 00:08:58,479 Alan Oster: we're not having lockdowns anymore. So therefore once you get 171 00:08:58,480 --> 00:09:00,540 Alan Oster: past the first quarter of this year, I think growth 172 00:09:00,690 --> 00:09:01,780 Alan Oster: will come back pretty strongly. 173 00:09:02,230 --> 00:09:05,699 Sean Alymer: Just one final thing, Alan, when other central banks, the 174 00:09:05,700 --> 00:09:09,530 Sean Alymer: US being the obvious example, but if bank of England's 175 00:09:09,530 --> 00:09:11,790 Sean Alymer: already started, if the ECB starts to lift rates at 176 00:09:11,790 --> 00:09:14,530 Sean Alymer: some point, does that put pressure on the reserve bank 177 00:09:14,530 --> 00:09:16,240 Sean Alymer: of Australia to lift interest rates? 178 00:09:16,760 --> 00:09:20,710 Alan Oster: Short answer is no. It probably means the currency goes 179 00:09:20,770 --> 00:09:23,790 Alan Oster: down a little bit relative to everything else, but you 180 00:09:23,790 --> 00:09:26,679 Alan Oster: got to remember these central banks are looking at inflation 181 00:09:26,679 --> 00:09:30,240 Alan Oster: rates that are very different. So for example, in the 182 00:09:30,240 --> 00:09:33,880 Alan Oster: US they're trying to hit a 2% inflation target and 183 00:09:33,880 --> 00:09:37,410 Alan Oster: they're currently four nine, in New Zealand for example, that 184 00:09:37,410 --> 00:09:40,800 Alan Oster: everyone hears about the rate rises there. They're basically trying 185 00:09:40,800 --> 00:09:43,500 Alan Oster: to hit an inflation target of two and they're five 186 00:09:43,500 --> 00:09:46,300 Alan Oster: nine, which is the highest inflation rate for 31 years. 187 00:09:46,710 --> 00:09:48,990 Alan Oster: So we are currently two and a half and probably 188 00:09:48,990 --> 00:09:51,929 Alan Oster: on the way to maybe three and they're targeting two 189 00:09:51,929 --> 00:09:56,740 Alan Oster: to three. So very different outlook in terms of where 190 00:09:56,740 --> 00:09:57,980 Alan Oster: these countries are starting. 191 00:09:58,400 --> 00:10:00,730 Sean Alymer: Did we get lucky or have just been really well 192 00:10:00,730 --> 00:10:02,910 Sean Alymer: managed the last three or four years? 193 00:10:03,530 --> 00:10:07,189 Alan Oster: I think basically most people think that we were not 194 00:10:07,190 --> 00:10:11,590 Alan Oster: so well managed because wages went (crosstalk) significantly down 195 00:10:11,850 --> 00:10:16,550 Alan Oster: and the RBA hasn't hit their 2 to 3% target for 196 00:10:16,550 --> 00:10:19,360 Alan Oster: five years. They've missed it for five years on the downside. 197 00:10:19,670 --> 00:10:19,709 Sean Alymer: Yep. 198 00:10:21,059 --> 00:10:23,699 Alan Oster: So they might let it go a little bit higher than 199 00:10:23,700 --> 00:10:25,900 Alan Oster: three for a while before they actually react. 200 00:10:26,370 --> 00:10:26,990 Sean Alymer: Alan, thank you for talking to Fear and Greed. 201 00:10:28,429 --> 00:10:28,880 Alan Oster: Thank you, Sean. 202 00:10:29,410 --> 00:10:32,370 Sean Alymer: That was national Australia bank, chief economist, Alan Oster. This 203 00:10:32,370 --> 00:10:34,550 Sean Alymer: is the Fear and Greed daily interview. Join me every 204 00:10:34,550 --> 00:10:36,990 Sean Alymer: morning for the full Fear and Greed podcast with all 205 00:10:36,990 --> 00:10:39,640 Sean Alymer: the business news you need to know. I'm Sean Almyer. 206 00:10:39,940 --> 00:10:40,559 Sean Alymer: Enjoy your day.