Labor’s best chance of getting inflation back into the bottle and avoiding a hard landing is to publicly back the Reserve Bank’s normalisation of interest rates.
The Reserve Bank of Australia is getting closer to normalising its key policy cash rate to the level needed to bring inflation from a forecast peak of nearly 8 per cent at the end of this year to its target band of 2 to 3 per cent by 2024.
Yet, that still only takes the cash rate to a low 1.85 per cent amid the tightest job market in half a century. With inflation at 6.1 per cent, the real interest rate remains negative. The economy is a long way from being clubbed with higher interest rates: even a cash rate of 4 per cent next year would still be negative in real terms.was an early critic of the Reserve Bank’s excessively loose policy, particularly Governor Philip Lowe’s guidance that his 0.1 per cent cash would be nailed to the floor until 2024.
Some of those who argued that the economy would fall off a cliff once the massive JobKeeper wage subsidy was removed now warn about hitting the economy too hard in order to tame inflation.Others defend the Prime Minister for questioning the Reserve Bank’s interest rate hikes when Labor, too, failed to predict that the biggest jobs collapse in memory would turn into the tightest labour market since the disastrous Whitlam government of the early 1970s.
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