Raising alarm on rate rises
Treasurer warns of ‘hard landing’
TREASURER Jim Chalmers has sounded the alarm about aggressive interest rate rises around the world, saying central banks risk causing a “hard landing” in their bid to slow rampant inflation.
Dr Chalmers said he would speak to US Federal Reserve chair Jerome Powell about his rapid rate hikes, which are driving down the Australian dollar and fuelling our inflation crisis.
Dr Chalmers said the federal budget, due in less than a fortnight, would contain targeted cost of living relief that did not add to inflation, but he ruled out immediate changes to the stage three income tax cuts due to flow from 2024.
Outside the White House in Washington DC, he said he expected the US was heading for a recession, despite US President Joe Biden saying he believed it could be avoided.
Dr Chalmers is on a twoday visit to the US capital to meet top world economic leaders, saying it was crucial to “take the temperature of the global economy” to ensure the budget could be updated “in real time”.
Dr Chalmers said recent interest rate rises worldwide were the “sharpest synchronised tightening of monetary policy in the modern area”.
“The risk here is a hard landing brought about by the blunt and brutal application of tighter monetary policy,” he said.
“The wider the gap between US interest rates and Australian interest rates, the more pressure there is on our own currency, which has consequences for inflation at home.”
Dr Chalmers said Australia’s economy was “in better nick than most countries” but “we won’t be immune from another global downturn” that could play out over several years.
Mr Biden said this week he did not think there would be a recession in the US, and if there was, it would only be “a very slight recession”.
Dr Chalmers said he would not “second-guess President Biden’s assessment” but there was a “broad expectation around the world that there’s a big risk of recession here in the United States”.
The International Monetary Fund’s forecast that a third of the global economy would shrink next year was a “very sober warning”, he said.
Having stoked a debate about the viability of the stage three tax cuts, which will deliver a flat 30 per cent tax rate for everyone earning between $45,000 and $200,000, Dr Chalmers said changes were off the table for now.
“The stage three tax cuts are around three budgets away as they’re currently legislated, so we’ve got more pressing priorities in the interim,” he said.