1 00:00:05,760 --> 00:00:08,879 Sean Aylmer: Welcome to the Fear and Greed Business Interview. I'm Sean Aylmer. There's 2 00:00:08,880 --> 00:00:12,030 Sean Aylmer: growing talk of interest rate hike this year following a 3 00:00:12,030 --> 00:00:15,659 Sean Aylmer: jump in annual inflation to 4% on Wednesday. In fact, 4 00:00:15,660 --> 00:00:18,329 Sean Aylmer: financial markets are pricing in a one in three chance, 5 00:00:18,329 --> 00:00:20,069 Sean Aylmer: or even a bit more, of a rise in the 6 00:00:20,070 --> 00:00:22,200 Sean Aylmer: official cash rate at the August meeting of the Reserve 7 00:00:22,200 --> 00:00:26,009 Sean Aylmer: Bank board. So is it going to happen? Warren Hogan 8 00:00:26,009 --> 00:00:28,319 Sean Aylmer: has one of the best track records on predicting rates. He 9 00:00:28,320 --> 00:00:30,509 Sean Aylmer: was the only economist to predict, a year out, that 10 00:00:30,509 --> 00:00:34,199 Sean Aylmer: the official cash rate would hit 4. 35%. He's also 11 00:00:34,199 --> 00:00:36,389 Sean Aylmer: one of the first to say that if there was 12 00:00:36,389 --> 00:00:38,790 Sean Aylmer: an interest rate cut coming, it wouldn't be happening this 13 00:00:38,790 --> 00:00:42,479 Sean Aylmer: year. That's all proved very prescient. Warren is Managing Director 14 00:00:42,479 --> 00:00:45,960 Sean Aylmer: of EQ Economics and Economic Advisor at Judo Bank and 15 00:00:45,960 --> 00:00:48,869 Sean Aylmer: previously, of course, the chief economist at ANZ. Warren, welcome 16 00:00:48,870 --> 00:00:49,770 Sean Aylmer: back to Fear and Greed. 17 00:00:50,280 --> 00:00:52,739 Warren Hogan: Fantastic. Thanks for having me on the podcast again, Sean. 18 00:00:53,279 --> 00:00:56,190 Sean Aylmer: Will we see a rate hike in August? And if 19 00:00:56,190 --> 00:00:56,940 Sean Aylmer: so, why? 20 00:00:57,600 --> 00:01:00,900 Warren Hogan: Yeah, unfortunately, it's looking very much that way. What we 21 00:01:00,900 --> 00:01:05,849 Warren Hogan: saw with this week's monthly inflation number was not only 22 00:01:05,880 --> 00:01:10,770 Warren Hogan: further confirmation that inflation is not falling, and of course, 23 00:01:10,770 --> 00:01:13,679 Warren Hogan: we need to see it continue to be moving downwards 24 00:01:13,740 --> 00:01:18,810 Warren Hogan: even gradually towards their target, but actually, we are now starting 25 00:01:18,810 --> 00:01:20,699 Warren Hogan: to get evidence that it could be picking up a little 26 00:01:20,700 --> 00:01:24,660 Warren Hogan: bit in 2024 confirming a few other bits of data 27 00:01:24,660 --> 00:01:28,619 Warren Hogan: that we've seen that are showing an improvement in demand in 28 00:01:28,619 --> 00:01:31,830 Warren Hogan: the economy and the employment numbers, the big one there, 29 00:01:31,860 --> 00:01:36,690 Warren Hogan: where we've had incredible employment growth. So what we now 30 00:01:36,690 --> 00:01:39,990 Warren Hogan: have is a fair bit of information on prices in 31 00:01:39,990 --> 00:01:44,370 Warren Hogan: the June quarter, and it looks like that quarterly number 32 00:01:44,370 --> 00:01:48,359 Warren Hogan: is going to struggle to be less than 1%, and 33 00:01:48,359 --> 00:01:53,580 Warren Hogan: I think most economists accept that two, 1% increases in 34 00:01:53,820 --> 00:01:57,839 Warren Hogan: core inflation in particular in a row, is essentially the 35 00:01:57,840 --> 00:02:01,679 Warren Hogan: trigger for the RBA to go in August as articulated 36 00:02:01,679 --> 00:02:05,249 Warren Hogan: by Michele Bullock in recent public comments, including senate estimates. 37 00:02:06,029 --> 00:02:10,380 Sean Aylmer: Why aren't higher interest rates working? You mentioned the labor 38 00:02:10,380 --> 00:02:13,139 Sean Aylmer: market there, maybe you can expand. We've been told that 39 00:02:13,139 --> 00:02:15,389 Sean Aylmer: if rates go up, the seam comes out of the 40 00:02:15,389 --> 00:02:17,849 Sean Aylmer: economy, and certainly, it looks to have come out of 41 00:02:17,969 --> 00:02:21,570 Sean Aylmer: households and consumers, but it doesn't seem to be working 42 00:02:21,570 --> 00:02:22,589 Sean Aylmer: or at least not enough. 43 00:02:23,459 --> 00:02:26,730 Warren Hogan: Yeah, I mean, obviously, a very complex story, but sort of the 44 00:02:27,240 --> 00:02:31,050 Warren Hogan: nub of it is this downturn is unique in that it's 45 00:02:31,110 --> 00:02:34,109 Warren Hogan: all been because of pressure brought to bear on household 46 00:02:34,110 --> 00:02:37,859 Warren Hogan: incomes. And of course, that's where you've seen consumers respond 47 00:02:37,860 --> 00:02:41,369 Warren Hogan: by pulling back on spending. So that's the game plan 48 00:02:41,369 --> 00:02:44,790 Warren Hogan: working. The next phase, which we needed to see play 49 00:02:44,790 --> 00:02:49,290 Warren Hogan: out this year was that weakness in demand impact business. 50 00:02:49,380 --> 00:02:52,619 Warren Hogan: And what we would've seen or should be seeing is 51 00:02:52,620 --> 00:02:56,189 Warren Hogan: these cost pressures that are in the economy not being 52 00:02:56,190 --> 00:02:59,609 Warren Hogan: able to be passed on to final prices because of 53 00:02:59,609 --> 00:03:03,210 Warren Hogan: the weakness in demand, that would hurt business profits. They 54 00:03:03,210 --> 00:03:05,880 Warren Hogan: would pull back on investment and hiring and sort of 55 00:03:05,970 --> 00:03:08,880 Warren Hogan: keep that inflation coming down and keep that softness in 56 00:03:08,880 --> 00:03:12,719 Warren Hogan: the economy while avoiding recession. But what we've seen is 57 00:03:12,719 --> 00:03:17,729 Warren Hogan: an improvement in business activity this year, best highlighted by 58 00:03:17,730 --> 00:03:21,090 Warren Hogan: the employment numbers. But also, the PMI for Australia that 59 00:03:21,090 --> 00:03:25,080 Warren Hogan: Judo bank sponsors, have improved. And of course, now we 60 00:03:25,080 --> 00:03:28,349 Warren Hogan: have evidence that the implication is that businesses have been 61 00:03:28,349 --> 00:03:31,649 Warren Hogan: able to pass on these cost pressures and the inflation 62 00:03:31,650 --> 00:03:35,939 Warren Hogan: is remaining sticky and potentially could be rising. So look, 63 00:03:36,029 --> 00:03:38,940 Warren Hogan: it's a very unusual economy, but the reality for the 64 00:03:38,940 --> 00:03:42,420 Warren Hogan: RBA is that every time they sit down, they have 65 00:03:42,420 --> 00:03:45,240 Warren Hogan: to ask themselves the question, " Is the current level of 66 00:03:45,240 --> 00:03:49,290 Warren Hogan: the cash rate going to ensure price stability in this 67 00:03:49,290 --> 00:03:51,690 Warren Hogan: economy?" Now, they do that every time for the last 68 00:03:51,690 --> 00:03:54,660 Warren Hogan: 30 years. Why? Now the issue is not only is 69 00:03:54,660 --> 00:03:56,460 Warren Hogan: it going to ensure price stability, but is it going 70 00:03:56,460 --> 00:03:59,160 Warren Hogan: to get inflation down to a level consistent with price 71 00:03:59,160 --> 00:04:03,209 Warren Hogan: stability, i. e, 2. 5%? And the RBA has shown 72 00:04:03,210 --> 00:04:07,619 Warren Hogan: extreme patience. We saw the stronger inflation numbers in Q1. 73 00:04:08,099 --> 00:04:10,289 Warren Hogan: They talked about a rate hike at the May board 74 00:04:10,289 --> 00:04:13,860 Warren Hogan: meeting, but said no. We saw the stronger April figures. 75 00:04:14,040 --> 00:04:17,219 Warren Hogan: They talked about a rate hike in June, but said no. We've 76 00:04:17,220 --> 00:04:20,520 Warren Hogan: seen this May number, and I think by the time 77 00:04:20,520 --> 00:04:23,250 Warren Hogan: we sit down at the next board meeting in August, they'll 78 00:04:23,250 --> 00:04:27,479 Warren Hogan: have had a higher Q2 CPI as well. So the patience 79 00:04:27,480 --> 00:04:31,560 Warren Hogan: can't last forever. And the reason is, the reality is 80 00:04:31,620 --> 00:04:34,350 Warren Hogan: that the most damaging thing that's happening in our economy 81 00:04:34,350 --> 00:04:37,860 Warren Hogan: is inflation. That's what's hurting everyone. And rates, of course, 82 00:04:37,860 --> 00:04:42,629 Warren Hogan: are hurting certain segments, particularly certain households, but the RBA 83 00:04:42,719 --> 00:04:48,180 Warren Hogan: cannot relinquish their responsibility to get inflation down because certain 84 00:04:48,180 --> 00:04:50,070 Warren Hogan: segments are under pressure. 85 00:04:50,640 --> 00:04:54,029 Sean Aylmer: But that's a bit unfair, isn't it? It's younger homeowners, 86 00:04:54,029 --> 00:04:56,849 Sean Aylmer: as opposed to older Australians who have paid off their 87 00:04:57,089 --> 00:04:59,700 Sean Aylmer: homes, they're the ones being hit by this. And I 88 00:04:59,700 --> 00:05:03,660 Sean Aylmer: get monetary policy is a blunt tool. Surely fiscal policy 89 00:05:04,170 --> 00:05:05,999 Sean Aylmer: needs to play a bigger role in it or something. 90 00:05:06,180 --> 00:05:09,150 Sean Aylmer: It just seems that the heavy lifting is being done too much 91 00:05:09,150 --> 00:05:11,609 Sean Aylmer: by the monetary policy and they don't particularly want to make 92 00:05:11,610 --> 00:05:13,830 Sean Aylmer: it political, so just park the politics of it. 93 00:05:14,309 --> 00:05:18,178 Warren Hogan: Yeah. Yeah, I think if you look at the fiscal policy, 94 00:05:18,178 --> 00:05:21,299 Warren Hogan: and obviously, we've got this cost- of- living support coming 95 00:05:21,299 --> 00:05:24,990 Warren Hogan: in, the tax cuts, and from the federal government perspective 96 00:05:24,990 --> 00:05:27,390 Warren Hogan: anyway, that was all formed up earlier in the year 97 00:05:27,390 --> 00:05:29,640 Warren Hogan: when it looked like we were on track, and it 98 00:05:29,640 --> 00:05:32,488 Warren Hogan: looked like the economy could be quite weak, and that 99 00:05:32,490 --> 00:05:37,169 Warren Hogan: this support would be welcome and useful. It's diabolical for 100 00:05:37,529 --> 00:05:41,070 Warren Hogan: treasurer charmers, but between the times when they were thinking about 101 00:05:41,070 --> 00:05:43,169 Warren Hogan: this in February and March, and basically, the time of 102 00:05:43,170 --> 00:05:46,770 Warren Hogan: the budget, the whole thing shifted. And now, it actually 103 00:05:46,770 --> 00:05:49,650 Warren Hogan: looks like this fiscal injection is coming at just the 104 00:05:49,650 --> 00:05:53,939 Warren Hogan: wrong time. But to your point, if they knew what 105 00:05:53,940 --> 00:05:57,089 Warren Hogan: they know now about the resilience of the economy and 106 00:05:57,089 --> 00:06:00,089 Warren Hogan: the stubbornness of inflation back when they first got in the 107 00:06:00,150 --> 00:06:03,539 Warren Hogan: government, the very interesting question is would they have done 108 00:06:03,540 --> 00:06:06,900 Warren Hogan: things differently? Because I think that what we've seen, and 109 00:06:06,900 --> 00:06:09,089 Warren Hogan: I've obviously been right at the forefront of this, is 110 00:06:09,540 --> 00:06:13,438 Warren Hogan: we've underestimated, not just the inflation, but we've underestimated the 111 00:06:13,440 --> 00:06:17,579 Warren Hogan: resilience of the economy. And I think if we knew 112 00:06:17,580 --> 00:06:20,520 Warren Hogan: this then they might've done a few things differently on fiscal policy, 113 00:06:20,520 --> 00:06:23,070 Warren Hogan: but hindsight's a wonderful thing, and we have to deal 114 00:06:23,070 --> 00:06:23,789 Warren Hogan: with what we've got. 115 00:06:24,450 --> 00:06:26,220 Sean Aylmer: Stay with me Warren, we'll be back in a minute. 116 00:06:33,690 --> 00:06:36,900 Sean Aylmer: I'm speaking to Warren Hogan, Managing Director of EQ Economics 117 00:06:37,109 --> 00:06:41,190 Sean Aylmer: and Economic Advisor at Judo Bank. So you talk about 118 00:06:41,190 --> 00:06:43,890 Sean Aylmer: a unique economy, the resilience in the economy, how much 119 00:06:43,890 --> 00:06:46,349 Sean Aylmer: of that is the fact that people saved lots of 120 00:06:46,349 --> 00:06:50,130 Sean Aylmer: money, hundreds of billions of dollars, in fact, during the 121 00:06:50,219 --> 00:06:53,219 Sean Aylmer: COVID pandemic, they've been able to run that down. It 122 00:06:53,219 --> 00:06:55,169 Sean Aylmer: sounds like, from the big banks, that that's kind of 123 00:06:55,230 --> 00:06:58,320 Sean Aylmer: run down now, and the official figures suggest that. Is there 124 00:06:58,320 --> 00:07:00,720 Sean Aylmer: a risk then if that's a major part for this 125 00:07:00,720 --> 00:07:04,948 Sean Aylmer: resilience or uniqueness that we suddenly really hit the wall 126 00:07:04,950 --> 00:07:08,849 Sean Aylmer: big time? If the reserve bank lifts rates, no one's 127 00:07:08,849 --> 00:07:12,720 Sean Aylmer: got any buffers to call on and the economy slows 128 00:07:12,720 --> 00:07:13,740 Sean Aylmer: extremely quickly. 129 00:07:14,550 --> 00:07:16,950 Warren Hogan: Look, there's no doubt that that's a risk. I think 130 00:07:16,950 --> 00:07:19,650 Warren Hogan: it's reasonably modest and obviously has to be weighed up 131 00:07:19,650 --> 00:07:22,590 Warren Hogan: against the risks on the other side. But my understanding 132 00:07:22,590 --> 00:07:26,340 Warren Hogan: is we had excess savings of over 300 billion, which 133 00:07:26,340 --> 00:07:29,369 Warren Hogan: is one of the biggest relative accumulations in the world 134 00:07:29,609 --> 00:07:33,990 Warren Hogan: during the pandemic. And my analysis of both the APRA 135 00:07:33,990 --> 00:07:37,830 Warren Hogan: deposit data as well as the household saving rate numbers 136 00:07:37,890 --> 00:07:40,889 Warren Hogan: is that we've probably run down about a third of 137 00:07:40,889 --> 00:07:43,259 Warren Hogan: that, but of course, a lot of that's sitting with 138 00:07:43,259 --> 00:07:45,540 Warren Hogan: people who the buffer's irrelevant because they've got so much 139 00:07:45,540 --> 00:07:49,380 Warren Hogan: money anyway. So we don't know, but we also don't 140 00:07:49,380 --> 00:07:51,870 Warren Hogan: know if we're close to the edge, but there are 141 00:07:51,870 --> 00:07:55,320 Warren Hogan: other unique features. The demographic shift with the final retirement 142 00:07:55,320 --> 00:07:58,649 Warren Hogan: of the baby boomers is completely underappreciated in terms of 143 00:07:58,650 --> 00:08:02,159 Warren Hogan: its core impact on the economy. And that is, just thinking 144 00:08:02,160 --> 00:08:04,739 Warren Hogan: about it this way, all of those baby boomers have 145 00:08:04,740 --> 00:08:07,620 Warren Hogan: just left the workforce and they're still spending, but they're 146 00:08:07,620 --> 00:08:10,050 Warren Hogan: not producing. So we have got a major imbalance in 147 00:08:10,050 --> 00:08:12,120 Warren Hogan: our labor market, and that's not going to go away 148 00:08:12,120 --> 00:08:16,439 Warren Hogan: anytime soon, but it's a structural issue, but it's playing 149 00:08:16,440 --> 00:08:19,110 Warren Hogan: a cyclical role because it's keeping demand in the economy. 150 00:08:19,799 --> 00:08:24,600 Warren Hogan: But look, the sad reality is, and Sean, you've seen 151 00:08:24,990 --> 00:08:28,290 Warren Hogan: these economies for a long time, as have I, is 152 00:08:28,290 --> 00:08:31,200 Warren Hogan: that this is all about the least bad outcome. There 153 00:08:31,200 --> 00:08:33,990 Warren Hogan: is no good outcome when you've got a serious inflation. 154 00:08:33,990 --> 00:08:36,420 Warren Hogan: And so, it's all about weighing up that risk between 155 00:08:36,960 --> 00:08:40,169 Warren Hogan: the inflation and the damage it can do both short- 156 00:08:40,170 --> 00:08:43,050 Warren Hogan: term and long- term versus the potential risk of really 157 00:08:43,050 --> 00:08:47,160 Warren Hogan: hurting the economy. And as I said, we've all underestimated 158 00:08:47,160 --> 00:08:50,309 Warren Hogan: the resilience of the economy. And then, I think the 159 00:08:50,309 --> 00:08:54,480 Warren Hogan: evidence in the labor market anyway is showing that... I 160 00:08:54,480 --> 00:08:56,940 Warren Hogan: would never put in these rate hikes, which I did 161 00:08:56,940 --> 00:08:58,258 Warren Hogan: back in April, if I thought it was going to 162 00:08:58,260 --> 00:09:01,140 Warren Hogan: push the economy into recession. And I just think it's 163 00:09:01,140 --> 00:09:05,700 Warren Hogan: a risk worth taking. And I think now, the RBA is probably 164 00:09:05,700 --> 00:09:08,160 Warren Hogan: going to take that risk. But remember also, they can 165 00:09:08,160 --> 00:09:11,880 Warren Hogan: reverse course very quickly. They can start cutting very quickly. 166 00:09:12,360 --> 00:09:14,939 Sean Aylmer: Yeah, you said the least worst outcome, I think it's 167 00:09:14,940 --> 00:09:18,480 Sean Aylmer: important to remember that the Reserve Bank isn't deliberately hurting 168 00:09:18,480 --> 00:09:21,240 Sean Aylmer: people, it's just actually trying to get the best long- 169 00:09:21,240 --> 00:09:21,929 Sean Aylmer: term outcome. 170 00:09:23,010 --> 00:09:25,230 Warren Hogan: Definitely. And this is the message when I'm going around 171 00:09:25,230 --> 00:09:29,910 Warren Hogan: the country talking to small, medium- sized businesses, the message 172 00:09:29,910 --> 00:09:33,000 Warren Hogan: is, just remember, those people at that RBA board plus 173 00:09:33,000 --> 00:09:35,909 Warren Hogan: the senior staff of the RBA, they have got this 174 00:09:35,910 --> 00:09:39,480 Warren Hogan: country's best interest at heart, and they are trying to 175 00:09:39,480 --> 00:09:42,900 Warren Hogan: do the best thing for this community over the medium 176 00:09:42,900 --> 00:09:46,110 Warren Hogan: to long term. And at times, of course, we can't 177 00:09:46,110 --> 00:09:48,809 Warren Hogan: get away from the fact that we sometimes have to 178 00:09:50,700 --> 00:09:53,939 Warren Hogan: make difficult decisions and have a tough patch, but we've 179 00:09:53,940 --> 00:09:56,880 Warren Hogan: seen in the past how well rewarded our economy is 180 00:09:56,910 --> 00:09:59,640 Warren Hogan: by going through things like economic reform. I mean, that 181 00:09:59,640 --> 00:10:03,870 Warren Hogan: economic reform of the 1980s was so disruptive to labor 182 00:10:03,870 --> 00:10:06,360 Warren Hogan: markets and industry, but we did it and we have 183 00:10:06,360 --> 00:10:09,000 Warren Hogan: massively benefited from it. So yeah, I think that's an 184 00:10:09,000 --> 00:10:13,710 Warren Hogan: important point to remember. And this so- called experiment where 185 00:10:13,710 --> 00:10:16,620 Warren Hogan: they're trying to sort of put more weight on employment, 186 00:10:17,340 --> 00:10:19,770 Warren Hogan: Michele Bullock made the point when she first got into 187 00:10:20,340 --> 00:10:23,609 Warren Hogan: office as governor that the best thing they can do 188 00:10:23,639 --> 00:10:27,389 Warren Hogan: to maximize employment in this economy, in this country over 189 00:10:27,389 --> 00:10:30,359 Warren Hogan: the longer term is to keep inflation low and stable. 190 00:10:30,359 --> 00:10:33,540 Warren Hogan: I mean, we've seen the benefits in the last 30 191 00:10:33,540 --> 00:10:36,300 Warren Hogan: years of what low and stable inflation brings to an 192 00:10:36,300 --> 00:10:40,530 Warren Hogan: economy, and I think we underestimate the damage that inflation 193 00:10:40,530 --> 00:10:42,719 Warren Hogan: can do to the health of the economy over the 194 00:10:42,719 --> 00:10:43,260 Warren Hogan: longer term. 195 00:10:43,799 --> 00:10:45,929 Sean Aylmer: Warren, what about the next 12 months? So let's say 196 00:10:45,929 --> 00:10:49,770 Sean Aylmer: there is a rate hike in August or soon afterwards, 197 00:10:50,700 --> 00:10:53,280 Sean Aylmer: do you think that'll be enough? Am I asking you 198 00:10:53,280 --> 00:10:54,450 Sean Aylmer: how long's a piece of string? 199 00:10:54,840 --> 00:10:55,140 Warren Hogan: Yeah. 200 00:10:55,230 --> 00:10:56,430 Sean Aylmer: What's the prognosis? 201 00:10:56,730 --> 00:10:59,790 Warren Hogan: Yeah, look, I think part of the framework here is 202 00:10:59,790 --> 00:11:02,549 Warren Hogan: that it probably looks like our interest rate needs to be well above 203 00:11:02,549 --> 00:11:05,490 Warren Hogan: 5%. And not that I think they'll go there, but 204 00:11:05,609 --> 00:11:08,250 Warren Hogan: that'll motivate them to at least take it to one 205 00:11:08,250 --> 00:11:11,940 Warren Hogan: or two more hikes. Now, the key issue for me 206 00:11:11,940 --> 00:11:16,139 Warren Hogan: is just what this tax cut and cost of living 207 00:11:16,139 --> 00:11:20,040 Warren Hogan: support will do. If, as some are thinking, it is 208 00:11:20,040 --> 00:11:23,519 Warren Hogan: going to be saved and only be spent by those 209 00:11:23,910 --> 00:11:28,230 Warren Hogan: in most need, then that could well be enough. Because 210 00:11:28,770 --> 00:11:31,710 Warren Hogan: the reality is that we are seeing interest rates start 211 00:11:31,710 --> 00:11:34,530 Warren Hogan: to get up to that restrictive level. We're now getting 212 00:11:34,530 --> 00:11:37,380 Warren Hogan: the interest rate above inflation, and we're starting to get 213 00:11:37,380 --> 00:11:40,109 Warren Hogan: real rates higher. So look, I still think there is 214 00:11:40,109 --> 00:11:42,690 Warren Hogan: a narrow path. In fact, one of the things that 215 00:11:42,690 --> 00:11:45,630 Warren Hogan: I think people misunderstand is the narrow path doesn't mean 216 00:11:45,630 --> 00:11:47,940 Warren Hogan: no changes to the interest rate, it's all about changing 217 00:11:47,940 --> 00:11:50,760 Warren Hogan: the interest rate to stay on the path. But one 218 00:11:50,760 --> 00:11:53,429 Warren Hogan: thing I am deeply worried about, I don't want rates to 219 00:11:53,429 --> 00:11:54,839 Warren Hogan: go up, I've got a mortgage, but I also have 220 00:11:54,840 --> 00:11:57,540 Warren Hogan: two daughters. And what worries me for them is that 221 00:11:57,540 --> 00:11:59,549 Warren Hogan: if we don't get on top of this and then 222 00:11:59,549 --> 00:12:02,460 Warren Hogan: we have to jack rates up big time in late-25 or in 223 00:12:02,460 --> 00:12:07,620 Warren Hogan: '26, then we saw it in the early '90s, what 224 00:12:07,620 --> 00:12:10,410 Warren Hogan: it did to our economy. We had 10 years of 225 00:12:10,410 --> 00:12:13,170 Warren Hogan: economic reform prior to that recession that gave us great 226 00:12:13,170 --> 00:12:16,588 Warren Hogan: tailwinds to recover. I don't believe our community or our 227 00:12:16,590 --> 00:12:20,340 Warren Hogan: economy will recover as well as it did in the 1990s 228 00:12:20,370 --> 00:12:22,950 Warren Hogan: if we go through that again. And another point on 229 00:12:22,950 --> 00:12:25,410 Warren Hogan: that, and I think it is important to note, is we're 230 00:12:25,410 --> 00:12:28,199 Warren Hogan: talking about the price of credit and whether it's high 231 00:12:28,200 --> 00:12:31,110 Warren Hogan: or low at the interest rate. The availability or the 232 00:12:31,110 --> 00:12:35,640 Warren Hogan: quantity of credit in our economy is abundant, and that's 233 00:12:35,820 --> 00:12:38,400 Warren Hogan: good, but what you don't want to see, which is 234 00:12:38,400 --> 00:12:40,978 Warren Hogan: what we saw in the early '90s recession, was a 235 00:12:40,980 --> 00:12:44,070 Warren Hogan: credit crunch. When the banking system stops supplying credit to 236 00:12:44,070 --> 00:12:47,940 Warren Hogan: the economy, that's when good businesses fail and people lose 237 00:12:47,940 --> 00:12:50,549 Warren Hogan: jobs that had good jobs. And we've just got to 238 00:12:50,549 --> 00:12:53,669 Warren Hogan: avoid those outcomes. And if that means that we have 239 00:12:53,820 --> 00:12:57,420 Warren Hogan: output growth a little lower for 12 to 18 months to mitigate 240 00:12:57,420 --> 00:13:00,870 Warren Hogan: that risk, I think most people would take that payoff. 241 00:13:01,200 --> 00:13:03,120 Warren Hogan: And that's really what the RBA is doing, and it's 242 00:13:03,120 --> 00:13:06,450 Warren Hogan: tough, but that's why they're independent. We've learnt these lessons 243 00:13:06,450 --> 00:13:09,179 Warren Hogan: before, but unfortunately, it looks like, in some parts of 244 00:13:09,179 --> 00:13:12,179 Warren Hogan: our community, the lessons aren't understood or learnt. 245 00:13:12,900 --> 00:13:14,578 Sean Aylmer: Warren, thank you for talking to Fear and Greed. 246 00:13:15,030 --> 00:13:16,078 Warren Hogan: Fantastic. Thanks Sean. 247 00:13:16,590 --> 00:13:19,560 Sean Aylmer: That was Warren Hogan, Managing Director of EQ Economics and 248 00:13:19,590 --> 00:13:22,590 Sean Aylmer: Economic Advisor at Judo Bank. This is the Fear and 249 00:13:22,590 --> 00:13:25,049 Sean Aylmer: Greed Business Interview. Join us every morning for the full 250 00:13:25,049 --> 00:13:27,689 Sean Aylmer: episode of Fear and Greed, daily business news for people 251 00:13:27,690 --> 00:13:30,450 Sean Aylmer: who make their own decisions. I'm Sean Aylmer. Enjoy your day.