Cooogie, welcome back, mate.

We're still shocked after the last board meeting that they didn't move rates.

How do you feel about that one?

You, me and a lot of people I speak to on that afternoon on a month ago, got that no change.

I had to refresh my page because this three point eighty five cash trait didn't change, and so I had a lot of wtfs coming through on my text line.

But look when you look back at what they said, the logic what the governor said at her press conference, Michelle Bullock said after the no change, you can see that they are not or they weren't.

Remember this is still four odd weeks ago.

Five weeks ago, they weren't yet convinced that inflation was entrenched at two and a half percent.

So let's just say what was?

What was?

It didn't convince it though, So it is?

Is it?

The monthly numbers are always because it's a monthly number.

The monthly number is not comprehensive as the quarterly number.

We want to see the gen Courter number, which by the ways, come out I'm sure we'll talk about in the minute.

And the unemployment rate was still four point one.

Again, that number came out subsequently, and they were still hearing from their business liaison, a really important part of their deliberations.

Obviously they rely on data, hard data on inflation, unemployment anyway, Yes, today's liaison is tomorrow's data.

You've got a big business saying, well, what are you finding.

They were still hearing that there are labor shortages in some sectors of the economy instruction, yes, and there was some evidence that the economy and price pressures were lingering.

They've clearly come down, but they were still England.

So they sort of thought, or the RBA governor and the board importantly thought, look if we wait six weeks, so what for the economy?

It doesn't matter that much waiting six weeks?

Or does it?

What do you think?

What abouty think about it?

What do you think?

I mean?

This is a bit more political, I guess, or a little bit different to what This is different to what economics would normally say but will be interested in.

But Australians sitting there hanging out for a rate reduction.

Yep, yeah, it's a bit more What do you think?

Yeah?

Look, I think it in a sense, I think it does matter.

You want to get that policy positivity out there when you know that the economy is only muddling.

You know that we get a GDP number in about three weeks time, and it's probably going to show in bottom of my GDP at about one and a half percent.

So the economy is not that strong, and one of the reasons is that we don't have any monetary policy.

Stimulus is still restrictive.

So waiting six weeks, it's another six weeks where the business sector think, oh god, you know we're not going to I'm not getting many customers in my door.

It's another six weeks of the mortgage holders saying, oh gee, so it's longer until I say that extra one hundred bucks a month or whatever that repayment relief is going to be.

So it sort of does matter.

But from the RBA's perspective, they think, well, it doesn't matter, and if I'm not saying this is the case now, but if they do find out they're wrong, they can slam on a fifty point cut.

As we saw with the rate hikes back in twenty twenty three, there are a number of fifty point hikes when they realized they were a little bit behind.

If you think back then, and yeah, during the global financial crisis are a couple of one hundred point rate cuts when they realise, holy smokes, this is blowing up.

So they can do fifty seventy five hundred based points if they needed SA for them, Yeah, waiting six weeks, but it sort of does matter a bit, you know, I want to kind of get my sugar hit now putting it off.

I get, I'm not know, I get I get a little bit concerned about that attitude because it's sort of playing God a bit, you know, you know it's I know, it's not you.

They're not.

They would always deny that position, but there are some poor buggers out there who made it.

Just please give me a rate reduction.

And then, by the way, they just want the news of a rate reduction.

They're not going to get it for a couple of months, but it takes that time to wash through the system, but they're dying for it.

Then they're desperate.

And then there might only be two percent of the title economy or two percent of all borrows.

It doesn't make any difference.

There are people out there who need it, who need to hear this good news.

And they need to hear it one to improve their personal financial position, which of course is really important.

But also then for the as you said, there's a lag between the effect of the rate cut today if we got one and then it's passed on, and then you realize in your bank statement, and then you realize, oh shit, I'm saving one hundred bucks a month.

Oh, and then I can go and afford to spend fifty bucks a months.

So you get the economy being stimulated.

That lag, we'll just sleep at night is three to six months, or just say, oh, thank goodness, I can you know my repayments have gone more affordable.

Yeah, And the business person, the business owner with an overdraft is saying, well, I've saved a few bucks.

I thank goodness for that.

I can quite a few minutes.

I can now buy one coffee a week.

Yes, have to make a percolay one hand.

And that's this ho issue about how much.

By the way, mark, that's how interestrates work.

When they're going up, they're sort of taking money out of our pockets, putting into the pockets of savers through deposit rates going up, and the economy slows down, inflation comes down.

Well, ask you this around.

We have rate cuts, what a myste during the rate rise period.

You mentioned there was a couple of fifties a fifty basis point rate rises during the rate reduction period and they had no compunction whatsoever doing that.

Oh yes, they just slammed it on and the market said, yep, go for.

It, and we must save this joint.

So I'm going to Inflation was, as we remember, going from one percent to three to five to seven percent.

Now let's talk about well, maybe you could give us a bit of insight.

It's the personality of the RBA.

They made the decision of about their personality.

We don't you know, Jim Chalmers doesn't although where he does appoint everybody but day and the end of the day made their own that we're going to give you the personality and the previously Glenn Stephens, previous RBA governors have been what they call preemptive or much more preemptive in their decision making.

Maybe not the governor himself, but the board.

And we do know it's been disclosed for the first time.

The vote was six to three, six a favor of doing nothing.

Three.

We don't know whether they want to say they want to put them up or down, but I'm assuming they're going to say down, and we don't know which members they were either, which great, that's interesting, But maybe you could just talk about the personality of the Reserve Bank now.

Yeah, the Reserve Bank now with Michelle Bulloker's governor Andrew Houser recently appointed as Deputy Government recently eighteen months ago, two years ago thereabouts.

The other makeup of the board is the Monetary Policy Board, which is made up of a number of academics ex bankers, a couple of economists, and a couple of people who are labor mark at l a b O.

You are union type people who talk about wage pressures and labor market reform.

So it's a it's not a bad composition.

And they sit down with the research and analysis of the RBA and of course look at the data of the bureaucrats, of the bureaucats, the hundreds of economists working in the art literary hundreds, yes, and say well, this is the this is these are the pressures that we're seeing.

They make a recommendation of these teams.

They still do make a recommendation, and that is debated around the RBA board table.

You know, I agree, I disagree, what about this?

And you know, it's a fullsome discussion.

I think that's great.

It's now two days correct.

Day one is a theoretical discussion.

What are we seeing and more what we might call economic wonk, you know, data and modeling and all that stuff.

Day two I think to well, what the hell do we do do Ken Steady, put them up, put them down, all that sort of stuff.

Back in the day, and you mentioned Glenn Stevens who was governor Gosh a decade or more ago.

He was the master at preemptiveness.

And by that I mean he would sort of see the data, of course, on the economy as evolved, unemployment, wages, inflation and all that stuff.

But then he was also looking forward, not necessarily wedded to an economic model, but when he saw I'm looking overseas and I can see the Chinese economy is a bit weak, you know, the tariff war.

While markets are still very buoyant, you know, stock markets are strong, it's not going to be good years.

And I think I've got enough evidence from the hard data.

Plus when I look through the windscreen rather than the review, I can see some problems.

So I'm going to trim twenty five, even though inflation is still three point zero, because I know the pressures are coming down current RBA board and the RBA staff, you know, the people who work at the RBA.

More Well, here's the hard data.

Yes they have models, Yes they have tried to be preemptive and all the rest of it.

But I think they are more dependent.

I think the dependency parameter is more on the hard data.

We get inflation comfortably at two and a half, and until we see unemployment spiking high, will be really cautious with our rate cutting cycle.

Put it this way, I reckon in the olden days.

I can't prove this, of course, but if Glenn Stephen was governor, rates would have been cut.

You know, he would have said, look inflation, because back then was two point nine on the trimm to me and unemployment was four point nine.

But I can see some headwinds coming domestically internationally, I'll cut them.

I won't say that there's going to be more to come, but I'll cut them now because I need to now.

And then that pre empts the economy in twenty twenty six.

So there's nothing in the mandate or in any guidelines which tells the RBA what type of personality to have they choose their personality, and we would call the current RBA therefore more hawkish on data.

More hawkish on data, and more reactive to news.

You know, Mark, you and I have been around the block of.

A thousand times way too long.

But that means and how many times of we and all of our mates in markets and all the other economics being surprised by economic.

Dobs and by the way we closed and they say we got it wrong.

Yes, I thought the other point rate would four point one.

Oh god, it came out four point three.

I thought GDP would be point two.

Oh it's coming at minus point two.

Yeah, we get our employment plus twenty thousand, oh minus ten thousands.

There are data surprises, and that's not and that's not just you and me, And I'm not throwing stones at any of my economist mates out there, but we don't have We aren't able to forecast that monthly those monthly numbers very well.

And so what that means, of course, is that we get these numbers, these surprises, and those surprises can even be in the form of a pandemic coming along or you think up, I remember three months before Lehman Brothers claps in the globe huge.

I think the cash right was seven point y.

I remember landing race was nearly just underno.

Yes, and I think that was appropriate because we had the mining boom, inflation was high, all this other stuff.

But then along came this shock, Along came the pandemic, Along came Trump tariffs.

Yeah, stuff happens all the time.

That did I say, geopolitical conflict in Middle East?

And even though oil price is still pretty low, but there's all this stuff going on China, Taiwan and the US, what's going to happen there?

I don't know.

I wouldn't be surprised to be woke up one morning and something's escalated that's caused the markets and the economy to change, or you know, they can be a natural disaster.

You know, there's earthquakes in New York at the moment now they're only low, but imagine a serious earthquake in New York or California or in Japan.

You know that changes markets.

Or a plane crashing into the correct all.

That stuff that how you can't forecast, it's impossible.

So it's just that it does impact on what you you the RBA do.

When you get that fresh US you might think, Gee, I thought we were going to have this problem, but the world has changed in an unexpected way, and therefore we have to react to the news that comes out.

So what do you think about I mean, and I know our listeners maybe have their own opinions on this, but I'd be interested to hear, especially someone like you who's had close ties to political figures in the past, what do you think about not having a preemptive mindset relative to not being prepared for shocks, So, you know, like shocks to the system.

So let's say, for example, we've all got it wrong, including the RBA, and actually we're heading towards a really high unemployment number for the next big number that comes out, a really crappy DUDP number for the next summer comes out, and a really good inflation number for the next time when that comes out, and all of a sudden, people have been suffering the whole long along the way, and our RBA hasn't been reactive enough quick enough, like on eight August, on eight July, I should say and reduce rates.

I mean, and I know the response from them would be so it's only one man, but still one month can put something.

It can put someone into bankruptcy.

But that's when they go fifty.

That's when they say.

They're too late because someone's going to be bank.

Yes, the problems have already occurred.

Or the bank's moves this old house.

So yes, rather than you having that relief of the I can keep my head above water just for this extra couple of months.

Another right cut comes.

I'm sort of okay.

My business picks up a bit.

I survived that terrible position in.

The lot for job, and getting a new job is really hard.

Yes, because I'm.

Plumps going up.

I'm easy.

Yeah, yeah, you know.

And I used to work at General Motives in Geelong, you know what I mean.

And this is the other thing about that, just by the pie, I know a lot of a lot of my mates, a lot of economiss makes.

I don't think they've published it yet.

Having some sort of AI Reserve Bank board approach, so they're pretending that the board is just artificial intelligence.

What would the Reserve Bank do with these facts?

And in a funny way, by definition, that's going to be reactive because it relies on the history on all the economic indicators, and so can we have the RBA board replaced by artificial intelligence.

I've tried them.

By the way, I've tried it as well, but I haven't done it.

Some people have gone into a huge degree in detail to really specify what you want the AI to spit out back at you.

But you can't ask to be premptive or.

What should they do today based on economic news.

And yes, I've seen people sort of frame the question differently, they get different results.

I'll try it, and I found an hallucinated a little bit, to be honest with you.

Yes, yeah, however, that's why, yeah, we need an RBA board with humans.

Heaven forbid.

I'm not suggesting it for one second that we need to run monetary policy, because you do need that human touch and you do need that.

You know, data is there.

We all look at the same data, but we can interpret it differently.

And that's not and there isn't skill to that or an art to it that you sort of see that unemployment number and the job vacancy is coming down, and you see the retail sales being soggy, and you look in your former judgment about.

How these face on what we've seen before, though correct, and when we've seen it before, we've.

Been worried just being no problem at all, so correct, exactly right, Mark.

So that sort of experience, I suppose you could call it that nuance in sort of you know, it's like like driving a car.

You know, you can anticipate things a bit and you can see, oh god, that guy is running.

I've been to pull off and let that stupid clown overtake me, or you know, if you're a brand new driver, I think what's going on here?

You don't know.

So in a sense, that experience is what the board brings, and that monetary policy board, as we're just chatting about a minute ago, is good.

Is good that they've made up of the right people.

And it looks like a given that we had a descent to six three discussion.

But that bothers me because it wasn't by it wasn't unanimous.

So it tells me that there are three I don't know who they are because they don't discose it, but there are three obviously quite capable people who didn't agree with the other six.

Now, funny if it was then it was Michelle Bullock, and I would be who say it was the other one saying hi?

As we're going through my head or is it or is there someone who's got a better consumer base experience who knows how consumer is really suffering.

And when it's going to six through be different.

It was unanimous, but if it's six three going, wait a minute, there's three prosecuting rate reduction and smart people by correct and with good and the best they've got the best knowledge because there's all been supplied to them by the LBA group, you know, the bureaucrats, and they're saying, well, we don't think that.

Imagine if it had to be not six three but five four?

Now yeah?

Yeah?

Or does she get a does she get a casting vote?

Yeah, they used to.

There's nine, she has one v kind of don't know.

It was deputy governor right now.

I'd be shocked if they voted differently.

There's two yay or may or whatever.

Well of the of the others.

Why does the majority carry the day?

Yeah, it does make the weight of the opinion.

That's you remember also that the Treasury Secretary is on the board too, that you know the person who's what the right hand woman Jenny Wilkinson of Jim Charmers, she's ex officio, so the Treasury Sectory whoever that.

Is, she's not a board man, but she's she's she's on the mountary policy boards.

She votes for up or down or steady, just like Stephen Kennedy who was on the board and I.

Can't remember, and now he's joined the Prime Minister's Primes Department.

Yes, so those people, again, they're smart, they know, and they sider.

Again, they sit around the board table.

Can you imagine nine people around the board table.

They get staff in to present different parts of the economy to them.

So I can't be one hundred percent shot because I've unfortunately never been one of these board meetings, but I reckonlast time they would have had the person who's done the in depth research on the effect of tariffs probably would have come in on that Monday before the Tuesday and had an hour's conversation about this is what we are seeing as possible risks from the tariff war, and that person would have presented around the board being oh, that's interesting, that's what I haven't asking questions now, that's one component of that whole discussion, and that's that's why it's such a what do we say, it's such a gray area.

Sometimes it's easy.

Yeah, the economy's week.

We're in a pandemic.

Economy is sort of in a screaming hole.

We're going to cut rates.

That's easy.

Then the only question is do he twenty five or fifty more?

And when it's like this gray area, yeah, we've got Yeah, the economy is not dreadful.

We've already cut a couple of times.

You know, I'm not so sure.

We're hearing bits and pieces from our very clever modeling staff in the in the in the bank, and what do.

We do so because then we've got six to three and then six of favor of no reduction.

Three problem a favorite reduction.

We don't know who they were, We don't know what the weight is of those particular individuals relative to the decision making.

And someone may argue everyone's going to equal weight.

Fair enough, But but but but then three days later, I think three days later, four days later, the unemployment number comes out, yes, at four point three.

Now, and that was again we're talking about data surprises.

That was a surprise.

So just on that, is there anything in that that would would require adjustment in that four point three?

I think it was a legitimate number that was actually that Yeah, there's not a quirk because of some other little thing happening.

Yeah, no, no, it was a pretty reliable number, a reliable number.

So I wonder whether that would have made any difference at the time, or do you think they still needed to see the inflation because when we talked, when we look at your checklist, we talked about gudpr inflation and labor markets and you know, like unemployment that is employment unemployment because you know, we you and I have bought everybody with the nayru discussion.

But we're heading it looks like we're getting closer to the sweet spot, which is I think it's currently four and a half.

According to the RBAS four and a half according Well, just by the way, if I can just interrupt for one second, the good fog at CBA Commals Bank, their economics department did a piece probably two months ago looking at NAU.

They reckon it's near a four four point zero.

Really, yes, so I can dig dig that up and have a look at it, because they were just sort of saying, because wages are starting to decelerate a bit, there's not that tightness in the labor market, so maybe it's near a four rather than four and a half and a lot of people might say four four and a half unemployment.

You know, it's a similar number.

But when you're fine tuning interest rates, when your twenty five point cut that you deliver.

All and you're average data based.

And data driven, if you sort of have that at the back of your mind, that twenty five point right cup didn't happen because the RBA still reckons it's near a four and a half I think, and it might not be that high.

So yeah, it's a really important consideration.

So no, no, what do you think they thought then that the.

Four point three that came out the other day.

Well, funnily enough, the governor did give a talk to the Anika Foundation about another week after that, I think it was the twenty fourth of July, and she was actually us, would you have changed your mind had you had that unemployment number?

And she said no, said, we were sort of anticipating, or we are anticipating the unemployment rate to creep towards four point three percent.

Now we got there in June, so she said it wouldn't have had a big influence on their decision making.

And that, of course was before we had the gym quarter inflation came in twenty thirty July.

It came out a couple days after I speak.

So again here we are talking about data dependent.

Were dated dependent too.

We need to see these numbers so they I think, if we get one more or two more employment labor market numbers, and if we get to a four point four, like one tenth away like that, that's nothing in the scheme of an economy of fourteen and a half million people.

Yeah, we're a big economy, you know, almost three trillion dollar economy here in Australia.

Don't forget.

So do you just get a point one change in the unterplant rate and it's up.

That will be the thing that the a Okay, we've now running a risk and of course they overshoot, and by that is fine.

Tuning an economy is really hard when there's so many moving parts.

That had been pretty good at they've been pretty good, yes, But if they just get there and this has not been critical at this stage, if they just get the analysis of the tariff effect a little bit wrong, or they get the effect.

Of consumer spending a little bit wrong, that we haven't responded to the rate cuts and the falling cost of living pressures.

Because inflations back down these sort of things, even by a small amount, then of course, gee, they've got to revise their forecasts, and therefore they revise their interest rate profile, and therefore they deliver more rate cuts.

And that's this whole scenario when we're sitting here thinking, well, well rates be in a year, Well, whatever I say today will be wrong.

I could probably get the direction right.

They're probably going to be lower.

I'd have ninety five percent confidence about that.

But whether it's three point three, three point one, two point eight, there are so many moving parts.

So then at the end of July, the ABS printed their CBI number inflation number, both headline and trimmed.

Headlines.

Unbelievably good, two point one beautiful.

But of course, of course, you know that's sort of not quite accurate, or it's accurate, but it's not necessarily the proper reflection of what's actually going on the gone because you know, there's all sorts of things that go up will go down as a result of various government policies, one of which, of course, is you know the seventy seven whatever is seventy five bucks a quarter.

Yeah, the electricity subsidence, which is still there.

It's for another two quarters.

By the way, it comes off at the first of January.

In the election campaign they extend one of the promises was a six month extension, so it's still there for the September and December quarters.

It drops off in the March quarter twenty twenty six.

So that's where everyone's expecting a big jumping headline inflation.

Do you think it when the subsidy disappears in January?

Do you think that which means that headline inflation will jump.

It will go up because electricity prices now be baked in, and electricity prices is one of the biggest, biggest it's a big, heavily weighted.

Because everyone uses electricity, everyone.

Everywhere, every household.

It's baits in everything, in the price of everything exactly.

Do you think that they'll trim that out.

Yes, they'll trim it out on the upside, just as they've trimmed it out on the downside.

So the and this is why there's quite a big gap between headline inflation and the trimmed mean the trimmed mean yeah, because we're two point seven for the trim meanum two point one point yeah, And that part of its petrol took peture is actually pretty chip was cheap and the Grene quarter still is so far September quarter, and that was a big volatile item.

But what the RBA do because those things like tobacco, which is excise tax and we won't get into the tobacko this tax discussion, but the whole methodology or reasoning for trimming out volatile price item.

It's not to say they didn't exist, because yeah, I'm happy to save seventy five bucks on my electricity and saving ten bucks and I fill up my car because petrol's down.

Fine, that's all good.

So that's cost of living.

But for the RBA, they know that as I said, as you said January one, twenty twenty six, prices of ay, you won't get that seventy five bucks subs so your full full fee, your full quarterly bill will be much higher.

Who knows what happens to oil and petrol prices, but it's not impossible to think they go back up to two bucks of lead, so oh, you know they'll take that out because that is not what interstrates are managing.

Interest rates are managing.

They have an effect on the con but intrates are managing our borrowing capacity, our debt repayment schedules for the household and the business sector.

They put a hurdle, a potential hurdle into will I undertake that investment or buy that property?

Ah, this interstrate, I won't.

It's a bit too high.

Oh fifty points low.

Yeah, I can afford to borrow an extra fifty grand.

I'll go and auction and buy that house.

Or instead of buying that house, I'll buy the other house, which is a bit more expensive, but I really love it if I can afford to do it, So it does work.

That's again how interest rates work, and that's why that's what they're trying to target.

It's that psychology, the mentality and even the hard facts on borrowing and debt service obligations.

By adjusting the interest rates to change how you and I and all the listeners behave to impact economic growth, to impact inflation.

It's it is a psychological game, a game of psychology probably the better way putting it.

Just interesting on that and we will get onto the hard stuff in a second, But just interesting when you talk when we talk about cigarettes and the xis and cigarettes.

So they got on a cross a pack of cigarettes that sixty bucks or whatever.

It is something horrendous.

But you know what's interesting about that.

I was reading a report the other days and says that most of the cigarettes that are bought in Australia today are illegal and they're paying for.

Twenty bucks a pack.

And what's interesting about that, though, is if you actually add the mant of cigarettes that are board at twenty dollars a pack, plus the man of cigarettes that are bought at you know, the legal ones that were with massive excise on them, and let's say it's fifty to fifty and you're divided by two, the price cigarettes have actually come down.

Yes, THEBA doesn't, but the NBA does look at the black market.

And I don't know if I should disclose this on the on the webinar, but I'm aware of some people who are tobacco addict.

They're smokers, they're not going to stop.

They've discovered where.

You can buy jeep singing everywhere.

And you know, and it makes because they're addicted, they'll go to the cheap place, pay fifteen to twenty bucks a packet rather than fifty sixty bucks a packet.

And what that doesn't so good.

It's just the black market, you understand that, but it is.

Of course, the government doesn't collect any revenue.

They don't collect the consumers still spend it, though.

It gets caught up because as the what do we call it, the crook selling the black market tobacco then goes and spends it and does things.

But the consumer spend it and the consumers.

And so there's money.

The stillet.

The black market is still part of the.

The tax office will tax it.

If they spend it in they have to pay GST on their things that they buy legitimately.

So but for the tobacco, that's that's a different sort of question.

I think the xcise has gone up so much that it has fueled the black market because when there's a market distortion there crooks can come and it's like other drugs.

But we've got a data distortion too.

Then marijuana and these are things.

If it's illegal and someone come in and sell it to.

For me, they should take cigarettes and alcohol out altogether, because it's like out of the out of the basket, out of the basket, because it's distorted.

It's massively distorted, and it does we're talking about the headline CPI before you know, petrol prices and electricity subsidies in and out, you know, going in and then coming back off, all those things which are which are cost of living foreshore.

But for the for the Reserve bank, when you've got an excise change on yeah, tobacco and alcohol, and they've got quite high weightings.

In fact, the other day because everyone used it tobacco and alcohol, they've got a bigger waiting the electricity.

No, they do.

People spend more on alcohol and tobacco than the electricity bill.

And when you think about it, Mark, I think the average electricity bill depends on some winter and all that sort of stuff, is about three to four hundred bucks a quarter, approximately four hundred bucks a quarter for an average normal household.

You know whatever, think about that.

That's there's twelve weeks and a quarter.

That's thirty bucks thirty five bucks a week.

Now, decent bottle of wines fifteen twenty bucks.

You know, a couple of beers the pubs easy thirty bucks.

And so you think about that, they people actually spend more.

This is the thing that I find staggering when this is the thing about data.

And I love being an economist.

You know, sometimes you dig into the day to think, my god, people spend more on that than they do on electricity.

So do we need a subsidy for alcohol drinkers?

You know, you don't get it.

No, no, because that's maybe that's for health reasons that we've got exercise on health reasons and tax reasons.

Is so, but those are things make the fascinating, absolutely fascinating.

It's very interesting.

So so we we.

The next meeting is next week.

Twelve Tuesday, twelve thirty, Sydney time.

They make their announcement, right, so the meat Monday, Tuesday, great Monday and Tuesday.

And let's just go through your board.

Yeah, like your checklist because.

A few things have changed since last time.

Yep.

Absolutely, and it's worth it's worth us going through it.

And by by the way, we will admit it.

We had either in neutral or easy, most mostly an easy.

Yeah, and we're wrong.

But we'll go down there, we'll go down.

We'll dust ourselves off and get up again.

This time we'll get it right.

I'm pretty sure, right mate, what do you reckon?

Okay?

And remembering that on our checklist here, it's the items near the top that are the most important.

These ones are less important.

They still have some influence, but it's really the top of matters GDP.

We haven't had any new news in the last few weeks, so we know that GDP growth one point three percent and probably only going to be about one and a half when we get the numbers in a month's time, neutral to easing.

Pretty weak.

So in other words, that's about half close to half of what they use in their own forecasting.

We should be great three quarter percent approximately, we're half that now.

Week and Treasury.

That's treasury too, so not just not just the.

It's Treasury, and I think most private sector forecast, academic conscer.

Yeah, we should be growing, we'll call it between two and a half and three percent something slightly different.

Numbers near three percent, so we're weak.

So you need more into straight cuts to kick start.

When's the next GDP will come out again?

It's third of September, right, so it's still good four odd weeks away.

So quick, so let's wait for more data.

But anyway, that's that much that's inflation.

Well, as we just said, Dune quarter, I'm going to slam downk that one into the easing cycle.

It's the momentum, but it's still a little bit of a little bit away.

Two point seven trimmed mean annual has a one percent four quarters ago.

Next quarter a ones dropped out.

Yep, that only has to be replaced by a point eight, and you're at two point five, so it was replaced by two point seven, which I think is more likely.

You're going to get your annual figure at two point four percent.

OK So that's the beauty of annualized numbers.

You move, you drop out the last add on, and you drop out last add on.

You as you like it.

I don't like the historical thing because I would rather have two past to one forward and two past and two extrapolations correat.

But as in stand, Michelle Bullet can sort of say, well, the last two quarters for trimmin have been point five and point seven, so one point two annualize that you're two point four.

So in the last six months.

She did do that in the februe.

She did that when she justified the February cut.

Correct, correct, exactly.

Labor market, I'm moving that almost to easing.

We discussed that jump and unemployment last month, and yes it's one month's number, but four point three is getting near the nay.

And if we get any downside to the labor market, that is unemployment goes up more, that will quickly go into the easing side of the cost.

And given that unemployment now is under their mandate, is something that must consider post the revision ext on.

Point, that is the revamp of the RBA eighteen months two years ago.

Their mandate inflation, yep, that was pretty much unchanged.

But they've also got to take a look at the labor market.

Full employment is their objective.

And I say, any labor represents a labo.

You are representeds on the reserve being board are going to be pushing that anyway.

Correct.

So the people the union linked fellow, some of the other academic economists who look at the labor market, you know, the labor market specialists or part of their specialty, they'll be sort of saying, yeah, we've got a bit of slack coming in the labor market.

Leave the RBA acknowledge it.

Yeah, yep, wages growth.

I'm putting that stilly neutral because there's still a hint of we get the next way.

Oh, this is a funny thing.

We get the next wages number.

I guess what the day after the board meeting, it comes out on the thirteenth.

That bothers me.

But why didn't someone just say we'll make the board meeting on the fourteenth.

Yeah, but anyway, so it currently wages growth three point four.

It's like, as we say, the goalie lock's not too hot, not too cold, just right.

So I'm putting that in neutral international economy, I'm putting that towards easing, even though the FED has said they're pausing on their rate cuts for US Federal Reserve and some other central banks have too.

When we look at the hard data on the US in recent times, it's been pretty soft.

They had the jobs numbers.

But there is GDP was pretty good.

GDP is okay, but the labor market's week yeah, and the economy there is okay.

But the FED has been postponing cuts the last couple of times because of tariff issues.

They're not sure how they're going to impact the US economy.

But I think I look at the futures market now there's a couple of rate cuts priced in over the next six months.

And of course China is still a weak The UK is an absolute disaster.

We just had Kei.

We New Zealand unemployment numbers.

New Zealand's not everything, but they had really poor numbers and they've already cut to three point twenty five.

More rate cuts coming in ki Wei Land, so you know there's a lot still going on on the neutral toweezing side.

House prices picking up olive at neutral.

They shouldn't really determine interest.

And they're not part of the mandate, but they have a wealth effect of the ABA doesn't like bubbles or crashes on If house time grows by between three and five percent year in year out, the ABA be happy.

They don't want to be ten on twenty.

They don't want to be minus ten.

So it's only when they're either booming or busting that they become an issue.

Retail sales, I'm moving to sort of neutral easing.

We actually had an okay number for retail sales for the month of June sales, so again one of these ones that might have been just the end of financial year sales.

We're clearing our tree of furniture and whatnot, and so that's why I've got it sort of easing ish, but not a slam dunk easing.

And because the other thing is that consumer sentiment picked up a bit.

I'm going to put that exactly where retail sales numbers are too, because consumer sentiment was at a three year high.

Now I might think, oh, gee, that's nice and strong.

However, and did you realize there are still about ten percent more pessimists than optimists, So consumer sentiment no surprise.

When the raid hikes were coming, when inflation was eight percent or seven point eight percent, consumers senterent was down down the gurglar.

Now with a couple of rate cuts and inflation coming back down, consumer sentiments edged up.

Still a long way from neutral, but we need a bit.

More relative to previous periods.

YEP.

Building approval, I'm gonna put that in easing.

Building approvals are picking up, but we need them to.

We want to build more good for GDP.

Obviously, if you're building bricks and cement and all the appliances that go into a house and the sink and the dishwasher and all the white goods, we need more of that and we need it to meet demand.

The government, by the way, just came out earlier this week and said that their student intake was actually going to be revised up, up, up by twenty five thousand.

I think it was to two eighty five thousand.

Wow.

So any signs that we're getting a material slowing in net immigration and students accounted there's immigration ain't going to happen, so that puts demand on.

Housing still, that's amazing.

Yeah, or the universities I think have lobbied them, as the universities make a lot of money from foreign students, make a truckload of money.

They need it.

Business investment are putting on easing still too low.

This is part of the productivity stuff that maybe we can talk about next time.

But we need cap X, We need business to invest in machinery, equipment, AI technology and everything.

And at the moment, business investments actually down and where it was a year ago.

Interest rates are a bit of a handbreak.

Global conditions are a bit of a handbrake, but we need business investment to kick higher business confidence.

The same commodity prices being neutral, they've hitten either here or their stock markets booming.

As I'm going to put that neutral because it's a good thing.

It's a wealth effect and there are good reasons for it.

But you know, it's not a bubble.

In fact, far from I guess if stock prices are going up fifty percent, you might want to move it.

But because you're just on that Just what's interesting about that when you look at house prices and you look at and you look at stocks both.

Doing very well.

Both, But the people who benefit from that are the people who benefit from actually actually also benefit from a higher industry because they're generally speaking older people who are retired or have no debt or have debt, and they've got additional income and they invested in the stock market through super or some other mechanism, and or they they are the same people going and buying houses and they're the ones keeping.

They've already got the house.

They they probably have a problem.

Yes, so what's that's very interesting that higher interst rates generally speaking suit those people because they've also got money into PO.

That's right, they're now getting four points something percent rather than back a few years ago point twenty five or whatever it was a low point.

So yes, in fact, just well, just well, can I just elaborate on that when CBA again sort I don't think they're fantasy, but they've just actually done some interesting stuff.

I think it was actually in their company sort of six monthly update.

They had a analysis of who is doing well by age cohort.

You know, twenty five to thirty four years old, thirty five to forty five, people who are fifty five to sixty four, and then sixty five plus.

The spending is going up on essentials, spending on discretionary holidays going up, their savings going up, whereas the younger folks, let's call it from twenty five to forty five, spending on essentials is steady.

By definition, you've got to spend it on essentials, discretionary spending down, savings down, and they're the ones that are being hit by these So your point is absolutely spot on that while we have about it, if you've owned your house, you've got money in super you're loving high interstrates.

If you're a young person with a big mortgage that you took out a couple of years ago, and you've sort of got the cost of living issues and you've got a couple of kids at school, you've got a car and all those other things, you know, your superannuation still decades away.

You're thinking what's going on here.

That's a parallel economy here, which is unfortunately, you know, interest rate changes effect not have a negative effect on one part of the economy, have a positive effect on the other part of the economy.

Correct and run they're about a third third each.

Yes, funnily enough it correct It is exactly.

And man Man I sort of anecdotally.

You go to the airport any day of the week, in which I do every week, traveling to the Gold Coast or Brisbane, it's all folk over fifty five.

Yeah, not many young folks, it's all they're.

All going on holidays, all going to Darwa.

The coast house or the holod home.

Yeah, it's a couple of weeks holiday.

Yeah.

Yeah.

And they're the ones who spend money and buy airline tickets and airlines airlines that can put the price up because they can surge them a surge price, and you know, and the matter, all that stuff contributes to inflation, is my point.

And what happens is those people don't mind if inflation goes hi because their interest rates going better.

They're earning more money and got less debt.

But the problem is they're fueling let's call it, putting people in the boyhouse who actually got a mortgage, who are younger, who.

Are working their tails of correct pay their mortgage.

Yeah, got other costs.

If you're old, your kids have probably moved out, you know, and you've got very few expenses.

Yeah, you've got.

And you're not you're not as affected by the cost of living going up as you would if you're younger and your kids.

Yeah, yeah, you have to close every every six months because the kids are growing.

But it's it's and I and I and I.

If we could just go back to where we're starting in the current rates.

We know that the restricted restrict putting, but if we could just go back to where we're talking about before, cookie like, it's you know, the RBA's mandate is often referred to as a blund instry.

We get all that, But.

In terms of being hawkish, I guess they've got to take their put blinkers on and not think about who's actually suffering.

I mean, you and I sort of seeing here to worry about mortgage holders, et cetera.

And maybe they should have had a rate reduction on the eighth of July and.

Blah blah blah.

But I guess they've got to just be data driven and what and we're only really interested.

We're not interested in any particular cohorting economy.

We're only interested in the data.

To the extender says that the GDP inflation and or labor markets are out of whack.

And I think your point is very validate.

And the governor acknowledges that there are some people doing it very tough, you know, to her credit and to her big credit, like seriously, because she occasionally gets asked that the press conferences and other parliamentary conferences whatever, you know, that are people hurting.

Says, yes are but he says, she says, I can't have interst rates set for young people or for old people at a different rate.

And it's a little bit like the state by state breakdown.

Victoria should have a rate cut unambiguously way, if you're just setting in straight, should probably have a rate hike, to be honest, because they're booming alas it's one interest rate for the whole country.

And so this this complicates the RBA's job just by the way to give to cut.

Them some slack.

You know, they're sitting there and they're hearing from their way context.

Oh, you know, the house prices are booming and the economy is booming.

I can't find workers because the mining sector is doing pretty well and you know all that, so a rate cut and you go to Victoria and thinking, oh geez, you know, things are tough.

You know the government governments sort of screwed up fiscal policy.

They're going to hike taxes there and land taxes and property taxes.

Victoria.

Yeah, you need a rate cut.

So that's what they're also balancing.

It's not just you know this macro all of Australia GDP, employment and inflation.

They here from different businesses and even different businesses are doing differently as well, of course, so they're hearing from geographic differences Wa booming Victorian Tazzy week for example.

And then they're hearing on an industry basis that housing construction we are still going pretty tough at the minute, Retailing, hospitality is pretty tough.

So they're hearing from a very different story depending on what you do.

Whereas the services sector, health services booming, you know, that's the one where we've got that incredible growth in government generated employment.

And even if it's a private sector like childcare centers or whatever, it's still the government that's fueling that.

Demands a public servant, it's the government.

Balance on that, so therefore a more good company see with your predictions in a second.

But therefore, do you think that the whole monetary policy then is a bit of a fiction given what you just said.

Look, Mountray Pols is really important, you know it.

You know that.

I mean that the way it's styled manage your policy important and the way we do it because given what might.

Be one it's bad for w A and what's good for retailing is bad for construction.

Well, what's good for an older person for a younger person?

Alas Ah, You've just opened a big can of words which you like to do that.

I know that's where government policy comes in the IBA.

Let them set interest rates for the macro economy.

We're talking fiscal policy, tax and spending.

Where does the government including state governments by the way, not just the federal government, where do they raise revenue and where do they spend.

That revenue or where they give relief.

So in theory, and this is sort of part of this, I'll talk about the intergenerational one because that's sort of pretty clear to I think most people.

I'll be blunt, and this is general because some people are old people are doing it tough, and some young people are killing killing But in a very broad sense from the data that we've got most old superannuents who've got truckloads of money and superannuation, who own their house, they don't need any support.

They're fine, as was just saying, a young family, couple of kids, big mortgage, good jobs, so they're doing well.

They're the ones that a rounder financial pressure.

Let alone someone who's renting, who's got maybe a modest income.

They're paying so much more for their goods and services every week, their insurance and their and their body corporate fees and their rent and food and groceries and all this other stuff.

I haven't got much of a pay rise the last couple of years.

They're the ones that are under a lot of pressure too, and they tend to correct and they tend to be the younger age cohorts.

What do you do about?

So that's where the government's got to do things like and look the what do we call it?

That relief on hextat twenty percent and extt the other day.

Fair enough?

Yeah, I think that was actually helpful and it helps some of those people qualify for a mortgage.

Down the track, A little bit.

So it's not the worst.

Look, it's not the policy that i'd have is number one is the best policy I've ever seen, far from it.

But those sort of things are for young people have got hex step, you know.

So it's sort of those sort of things that can tilt the balance.

And when you're saying we should be looking after the people who are exposed to the tough economic times and maybe not give so much support to those who are doing fine, it's the governments that do it.

That's the government's job, correct, not the the RBA.

Justinustrates, they're on inflation and full employment, right, so that's how it should be.

So the RBA is, you're right, it seems to be corrected.

Be hawkish based on the data because you've got much but better data than you've ever had before.

And government your job.

And by the way, the RBA, not so much this governor, but previous governors have said, you know, the government's fiscal policy is not doing any to help things.

They have said that in the past.

Correct, And I remember you probably remember this too, but I don't remember who it was.

It might have been, I don't know it was Frank Crean or Simon Crean, but one of them was treasurer in the mid eighties under Hawk.

Yeah, would that be.

It would be I think Frank was GoF Whitlam, and I think Simon might have been in the eighties.

Right, so well, either one of them.

Actually I don't remember which, whether it was Goff's period or whether it was Bob's period, Bob Hawk's period, but I remember very distinctly because I had one people who weren't earning a certain amount of money, who had a mortgage got a tax rebate of the interest paid on their mortgage, and I think it was up to one thousand bucks.

And what it was is it was me.

It's tested and I was one of the people that got it.

I got a tax refund of one thousand dollars.

And I remember at the time thinking to myself, that's a bloody.

Good physical policy.

That's a great policy.

Because I was quite interesting economics at the time, but I thought that's very good because I know that I need that risk, I need that relief now because the interest rates.

Were quite high.

We're going through we're going through an inflationary period, and you know, both both golf and.

In those days we had double digit interstrates can't whether it's seventies were.

If you remember it was off the back a big spending by both those guys.

It was incredible and and you know and that as we know, I think you and I've said many times, government's created inflation by putting money in the system.

And you know, for all the good reasons they've got to do it.

We had to do it during COVID et cetera.

But you've got to do these things.

But people will spend it when they've got it, and that will create inflation because vendors will say, vendors, merchants will say, wow, they've all got money.

I'm going to put my price up because i haven't been able to do it for a long time.

And that's what crazy inflation.

But I remember they had to bring interest rates in to kill it, and you know that inflation, which they did.

And I was I had a mortgage and I was one of those people who's when means tested was entitled was entime to get I'm pretty sure it.

Was either eight hundred dollars one thousand.

Bucks amount of money and this.

And it was and it was a relief.

It was great when that check came in mate was a big deal for me, and I just wonder, is that the sort of policy you like the thought of it?

As an economist, I'll turn it on its head.

I don't like first home bier grants.

No, no, this was, But I'm saying that that that way they try to help house price green.

Whereas if you've got a mortgage and you're under financial stress, and it's qualified because again higher interst rates are meant to cool the economy down, but you don't want to smash every mash those most vulnerable.

Let's just say in the bottom quartile of vulnerability.

That was me.

So, look, some people have got a mortgage and they're fine.

There's a lot of mortgage holders are absolutely fine.

They took it out years ago, they paid half it off, they've got to pay rise since and so they don't need that help.

Means testing it is part of the thing.

Look, I have to think about that a whole lot more, but I don't mind it.

I think that there's something in that because I like the relief issue that we were just talking about for Heck's stet.

Clear enough, it's could policy helps some young people produce their hex stet and all the rest of it.

Uh So mortgage relief, I'll have to think about that, but I quite like it.

I'm pretty sure through Love which one of the history books.

So I've got a whole lot on my shelf at home in the years of Hawk and all that.

Because it wasn't as if I was because I was.

One of those people like just about every dollar I earned went to pay for my family or or or my mortgage.

That's that was it.

I wasn't one of those people's contributing inflation because I wasn't spending like a drunken sailor, because I had nothing left over.

So I needed that thousand bucks.

And that was a holiday for me.

I take my whole family on holiday.

And do something nice, so important, and we probably just go down to you know, down to Bateman's Bay or something.

We weren't going to mollyk It was mollybook actually read.

Put over all the kids in the came Christmas that we're heading for Christmas.

I loved it.

We paid render the house or something would have happened.

But that's that just I'm just running.

Whether that's to our audience.

That's where the government comes in.

Fiscal policy is really.

Poorant to help.

And it's even the debate about superannuation now without getting into the nitty gritty of taxing, unrealized gains whatever, there are some people who've got bucket loads of money in the super.

They don't need another tax break.

Now, whether this is the right way to repair it, we'll leave that for another day.

But you know, you don't need to add to the generosity to super innovation.

Put it that way.

Yeah, I agree that.

Well, Coogie, we've covered a lot of problems, but made where do you think that What do you think is going to happen next week?

Next week?

Look, they're going to go.

They're probably going to go twenty five points.

They have to.

And I think, as Michelle Bullock said last time, there was a question of timing, not direction.

In the period since the Shock Onhold decision back in July, as we just said, we've had the unemployed rate going up from four point one to four point three percent.

We've had the trimm demean going from two point nine to two point seven.

So both are heading in the I'll say the right direction for a rate cut.

You know, we don't want to employment to go up.

But so as the board sits there next week and mulls over this sort of checklist on the economy.

Plus they're modeling, plus they look at the global economy twenty five.

What again, it's one of those ones.

What she says will probably be more important than what Michelle Bullock does, and so the statement that she puts out fine will read that there is the monetary policy statement, which is the sixty or seventy pages of analysis of the economy with updated forecasts, So we'll pour over those.

Plus of course she has the press conference at three point thirty Sydney time, where and I must say, the questions now better than the very first couple that she did, So the journals have've learnt to ask good questions.

She'll be asked, and I dare say what she might say, or hint at and the board papers and all this other stuff.

We'll hint out.

Monetary policy statement will hint out, here's the third rate cut in the cycle.

We are happy with that, but we'll need more information on inflation, unemployment, economic growth before we move again.

So it'll be a here's the rate cut, and don't expect one next time unless the data tells us so.

Again, getting back to that point that we made a short while ago about data dependency and we look at data rather than preemptiveness.

So it'll be one of those ones where and if the data is crappy, they'll cut again.

But if data is okay, you know, it doesn't deteriorate, and there's a bit of a more optimism and consumer spending and something, they'll be on hold for a few more months.

So it's interesting you said.

Series, and we'll finish off on this, but I ask you a view on it.

But generally speaking, as you and I noble up to two thousand and ten, anyway, the series were five up, six down over a period of a couple of years, and it was always considered to be there will be a series of rate reductions.

It didn't.

You just didn't get one.

Do you think the series we have a structural change these days and then we are not going to see series like we normally see.

I think we.

I think you're right, and even if you think back pre pandemic, I'll just have to double check my dates.

But something from like twy and ten to twenty nineteen, there were few the only direction rates was down, and there were periods of two years where they did nothing.

Yeah, correct, they leven't steady for two years, there'd be one.

They'd live for eight any more months.

So that was that.

That was the start of that five up, five down or six down, you know, five or six up or down.

And that was the nice cycle that period that was post global financial crisis and really low inflation back then.

Pandemic came along that sort of stirred up all the economics of the world, and then we had what was it, well, the equivalent of thirteen twenty five point rate hikes, four hundred and twenty five points of rate hikes in that tightening cycle from twenty twenty two to the end of twenty twenty three.

So thirteen, it wasn't six or seven, five or six.

And I've had two rate cuts and we're not going to get thirteen rate cuts this cycle.

No, what.

Sincross Sydney Harbor.

I cut thirteen back too point one percent.

It's going to be spaced out as in duration between moves and very very cautious.

I think that's this, and I think that's the methodology, and such is the nature of the economy right now.

It's changed the post COVID is that we've got this incredible change.

And this is a question that I don't know any answers to.

But the artificial intelligence change consequences for employment, consequences for productivity, has consequences for the RBA and the US Federal Reserve and the Bank of England, all central banks and interstraight settings.

Because we don't know quite where this is going to go to be frank.

And therefore we say to our audience, because you know, in the past we've always said this to the audience.

The opposite to what I'm about to say is that we would say, and the money markets are saying there'll be two more rate reductions, or the major banks are saying there'll be two more this year and one more extra or something of that, and I would say to our audience, and I hope, I wonder if you agree or not, don't listen to that stuff anymore, because I think Michelle Bullock's I mean, you can listen to it, but they don't.

But don't put too much don't don't put too much weight on it.

Don't put your house on it, so to speak.

It's interesting.

Don't plan with that, oh no, don't.

Don't make a decision based on that, And again, and there I say, and I don't mean to be throwing stones at doctor Lowe, but his no rate hikes for three years was also part of the death of that preemptiveness as well, because that hurt the RBA.

And and you know, at the time he made it fair enough, endemic and all this other stuff, so I could understand what he was saying.

But it turned out to be a mistake, as we all know.

And that's the death of why Michelle Bullock is very cautious and when she asked, I can't rull anything in her out, they could up, they could get you.

And that's fine because she's learned from that because she was deputy governor at the time, so she was well aware of the flack that that created for the RBA.

But I think in addition to that, it's just the dynamics of the economy now that it always changes.

But this, and I'm coming to terms with as we all are, artificial intelligence.

What's it mean, how's it going to work, what's it what's it mean for jobs, what's it mean for wages growth?

What's it mean for inflation?

So there's all these unknowns and while you know we were saying before stock markets are booming, you know, and this is when the economy's mediocre.

It's very hard to reconcile a lot of this stuff, it is, so.

We're seeing some things now and currencies are very different to the US dollar of things.

So global capital markets are changing, you know.

Again this is sort of really important.

Is she for Australia too?

For another day too.

But we've got getting close to four and a half trillion dollars in superannuation money.

I speak to some of the big super funds.

They're over their eyeballs in investments in Australia.

They can't buy any more Australian assets.

They are putting their money into international assets.

And it's not just the US or Europe.

They're putting money into what we might call emerging markets in you know, Southeast Asia, in South America.

You know, some of the some of the opportunities there are incredible, and so that changes the dynamics of the economy.

Globalization, globalization for capital markets.

And that's and you're throwing the tariff stuff their mark, and so we look at where interstrates are being priced into markets.

But as we've seen over the last little while, it's not a good guy to what actually happens.

So we might just finish off in this.

But late people that need to understand we've got we've gone through in the last company is probably starting a long, many many years ago.

But just the last company is structural change.

So what we've always known to be the K we shouldn't assume that is going to be the position.

That's the bottom line.

And I think that's feeding to the RBA thinking we're talking about that before.

So the RBA preemptied this maybe back in the day when Glenn Stevens was governorate.

You can sort of say, well, if I put rates up, I can see what's going to happen.

Now, an interest rate change might not impact the economy like it used to because of an instruct change is not going to affect artificial intelligence take up that's happening.

You know, we're not a manufacturing economy that if you put rates up, people to buy less cars, so the current stry slows down.

That was easy to work out.

But those technological changes are happening.

Whether interest rates are zero or ten percent, it doesn't matter and how that, but they do have an impact on the economy and that's what we are all grappling with, including the RBA now in the meantime, that's why they react each month or reach six weeks or eight weeks to what they're going to do.

Googy, thanks for muchmad, I'll see you in a month.

See month and a bit.

Thanks marking mate.

Cheers set, take it up, take it