Jim Chalmers responds to question that’s on the minds of every Aussie with a mortgage
Mortgage holders are hoping Australia’s central bank will copy the US Federal Reserve’s rate cut, but the finance minister says the economic climate is different.
For the first time in four years, the Federal Reserve announced a relatively large rate cut of 50 basis points. Australian mortgage holders are wondering whether the Reserve Bank of Australia will follow suit.
But Finance Minister Jim Chalmers said the US central bank’s economic outlook is different to that of Australia’s central bank.
“What we saw last night in the US was pretty much to be expected,” he told Nine’s Today show on Thursday.
‘When the Reserve Bank meets next week they will discuss a whole range of issues, including that. But they will be focusing on inflation, as will the government.’
The federal rate has risen more than the Australian cash rate and remains higher even after the recently announced cut.
The Fed’s target for the rate now stands at 4.75 percent to 5.0 percent after the half-percentage point cut, compared with Australia’s cash rate of 4.35 percent.
Finance Minister Jim Chalmers (pictured) said a cut in the US overnight rate was expected and said this did not mean Australia would also have to cut its cash rate
The last rate cut by the Reserve Bank was in 2020, when the cash rate fell to 0.10 percent.
The US announcement was just one of many factors, besides inflation, that the Reserve Bank must consider in its monetary policy decisions.
“The global economy is a pretty uncertain place. That’s one of the reasons why we’re seeing these rate cuts in countries like the US,” Dr Chalmers said.
‘If we look at the situation in Australia, we see that inflation is coming down quite a bit.
“The Reserve Bank will assess that.”
According to Senate Deputy Opposition Leader Michaelia Cash, there is “no good news in sight for Australians” as the domestic inflation outlook is significantly more pessimistic than in the US.
“It reaffirms that Australia is now at the bottom of the list when it comes to tackling inflation,” she said.
The Reserve Bank is likely to keep an eye on the Australian Bureau of Statistics’ August labour market figures, due to be released on Thursday.
The labor market is slowly but surely weakening, in line with the broader economic slowdown aimed at curbing still-high inflation.
But despite the weak economy, demand for labor remains relatively resilient, a bright spot repeatedly highlighted by the federal government.
Australian mortgage holders have felt the effects of successive interest rate hikes, with the last rate cut by the Reserve Bank coming in 2020 (stock image)
The government hopes the data will show that more than a million jobs have been created since the Labour Party came to power.
“The Australian labour market is quite resilient. The unemployment rate has gone up a little bit over the last year, so the number of vacancies has gone down a little bit,” Dr Chalmers said.
‘Given the slowing economy and weaker labour market, it is a remarkable achievement that a million jobs have been created under this Labour government.’
In July, the unemployment rate rose for the second month in a row, by 0.1 percentage point to 4.2 percent, as 58,000 jobs were added to the economy.
Commonwealth Bank economists expect August figures to show around 20,000 jobs were created in the economy, taking the unemployment rate to 4.3 percent.
Anneke Thompson, chief economist at CreditorWatch, said the employment figures would be “very revealing” about what the future holds for the Australian economy.
Dr Chalmers said the Australian economy was resilient despite inflation running above target and millions of Australians struggling with the cost of living (stock image)
The credit rating agency’s monthly business risk index signals “extremely challenging conditions,” particularly in the food and beverage, retail and construction industries.
“Under these circumstances, it is almost certain that unemployment will continue to rise. The only question is by how much?” Thompson said.
She added that strong public sector employment, particularly in the disability sector, masked weaker underlying private sector employment growth.
“We don’t expect companies to become more confident until the cash rate has been cut at least two or three times,” she said.