Fed up

This week is Reserve Bank interest rate decision week. The first since 17th June.

I do think it will confirm that interest rates have peaked – they were last raised over eight months ago, and despite "24-hour news headline experts", - there are many with predictions of further interest rate rises over the last month - cool heads should confirm that the cash rate will not be increased this week.

For what it is worth, I am sticking to my prediction from last November that they will not change in all of 2024, although there is some "risk" to this prediction as there may be a decrease if the RBA decides to look at the US and see some interesting critique of their equivalent there, The Federal Reserve, or the "Fed".?

Hint: subject line link.

For those who don’t want any more detail. That’s as much as you need to know this week.

For you who would like to know a bit more, I will cover only these areas with a few juicy sweeteners to explain.

There are so many interesting stats that feed into these for now, but based on they may be more interesting to me than many of you, I will refrain from vomiting up a chart bucket.

In our last note after the last RBA meeting in June.

See "Taking our obs" 23/6/24, we discussed the three vital factors to watch for in interest rates.

They are 1. The inflation rate, 2. The unemployment rate, 3. What the RBA say in their commentary after a rates decision.

So many experts want to overcomplicate this, but even the RBA website makes this quite clear:

"… the Bank has a duty to contribute to the stability of the currency, full employment, and the economic prosperity and welfare of the Australian people…the Bank sets monetary policy to keep inflation in the economy to 2–3 per cent and employment at the maximum level that is consistent with maintaining low and stable inflation…"

Source: rba.gov.au

What more could you want as a guide???

So, let’s have a look at these.

1. Inflation rate

Last week the crucial quarterly inflation (CPI) rate was released. It was good news and took the wind out of the sails of the rate hikers brigade.

As mentioned last week, any number 4% or below would probably prevent the RBA from increasing rates.

The "headline" number was 3.8%, while the more important "underlying" rate was 3.9%.It sounds good news, but the chart below shows it is stubbornly high and at least 1% higher than the RBA target:

Definitely the key one to track.

NB: Headline" is the overall inflation rate, "underlying" cuts out the most volatile items each quarter and is seen as a better indicator of what is really going on.

2. Unemployment rate

The latest unemployment rate was released two weeks ago and shows a slight uptick (good for interest rates, not so good for those who lost their jobs).

As the chart below shows, the unemployment rate has increased from a lot of 3.5% to 4.1%.

This sounds like a large increase, but as you can see, it is still very low, and you have to go right back to 2008, when it was last at this level.

The labour market is still described as "tight", and this can cause some confusion as it is no secret that many businesses are doing it tough.The chart below explains it.

-???? ???? There is still job growth, although it is slowing from a peak of 580k to approx. 320k p.a. now.

-???? ???? Businesses are not hiring, and there is no job growth in the private sector. It is all Government funded i.e. taxpayer funded roles with the demand.

With population growth still very strong, and a many businesses stopping hiring, the unemployment rate could climb quickly.

The RBA will be conscious of this.

3. RBA Commentary.

This is to come this week.

For today though, I am reading what is turning controversial in the US.

The Federal Reserve ("Fed") is talking about dropping interest rates.

This is good for them, but they are facing criticism for acting too late, as jobs data shows that unemployment is rising already, and there are talks of a recession there.

Conclusion:

The RBA won’t want to be caught with similar criticism, so I cannot see any rate increases. Subject to inflation coming down over the next few months, they may drop interest rates towards the end of the year.

Great for your mortgage!

Don’t build it into your budgeting yet though.

As above, inflation coming down is a big "if" for now.

Don't forget you can use this link to book a call if you would like to discuss this or any other aspect of your property journey: https://fin4nurses.me/clientmeet

Have a Great Week!!