We face a rate pincer for Christmas present

AUSTRALIA is going to spend the rest of the year caught in a rather nasty interest rate pincer – backdropped by a more fundamental arm wrestle between inflation and recession.

The pincer comes from the differing policy meeting calendars of our Reserve Bank and the US Federal Reserve Board.

Our RBA meets every month on the first Tuesday, apart from January – a twomonth gap that is increasingly a relic of a very much ‘yesterday’ Australia.

You would think it is one more thing that has to change about the RBA; and review or no review, this coming January could be a very good time to start.

So we can look forward to five more ‘frenzies’ of the sort we saw running up to this Tuesday and even more frenzied from 2.30pm after the rate decision announcement.

The frenzy will be particularly frenzied around the next meeting in early August and then again the Cup Day meeting in November, as they follow the quarterly CPI data.

Let me suggest both CPI numbers, for the June quarter and the September quarter, are going to ‘surprise’ on the upside. Hence the likely frenzy dialup.

The December quarter CPI comes out at the end of January ahead of the RBA’s February meeting which – and the forecasts that follow – will inevitably set the tone for the coming year, just as the February meeting this year should have done but unfortunately didn’t.

This last February meeting should have been signalling accelerating inflation and early rate rises. It did neither.

Those three coming meetings also, importantly, coincide with the RBA updating its economic forecasts.

They are important as a view into the RBA – how it is reading, or misreading, the economy; and then, secondly, what it is likely to do with interest rates.

Now, our rate moves are ‘all about’ home loans and property prices – and those millions of invisible Australians: depositors.

They have close to zero immediate consequences for the share market; and, to the RBA’s credit, it does not think about the share market when it’s making its decisions.

It’s a very different matter in the US.

As I’ve explained over the years, the Fed is utterly, disgracefully and quite frankly stupidly hostage to Wall St.

Even the supposedly tough-talking 2022 version of the Powell Fed. Yeah, sure, get back to me when he lifts the Fed’s official rate to 5 per cent this year.

It also means Wall St is hostage to what the Fed does; and our market is hostage to the interplay between Wall St and the Fed and the daily speculation about it, both off key data like their inflation numbers, but also just chatter.

The Fed meets every six weeks.

That means sometimes its meeting coincides with the RBA.

It did in early May when it hiked by 50 points and the RBA did its ‘surprise’’ preelection 25-point hike.

And it will again in November.

But in July, September and December the Fed will ‘shock’’ at different times in the month to the RBA, hence the rate pincer.

Wall St will be kept on edge because the key data in the US – the CPI most especially – comes out monthly, in the first half of the month.

The subsequent Fed rate meeting could then be two weeks away; it could be four weeks away.

That provides a lot of time for market frenzy.

I think the Fed will buckle to a Wall St temper tantrum at some point, even if it means just pausing further hikes. Our RBA governor is talking tough on inflation; but the real question will only be posed to him, when inflation shows no signs of, conveniently, falling below 3 per cent, and we do start to see serious signs of recession ahead.