KPMG Chief Economist Dr Brendan Rynne comments on today’s speech by RBA Governor and the ABS labour figures
RBA Governor Philip Lowe’s speech this morning was the perfect prelude to the release of today’s unemployment figures.
Governor Lowe gave close to a concrete guarantee on what the RBA Board will be doing with the cash rate over the next three years – i.e. not pushing it up – and there is a very strong likelihood of a cut to the cash rate next month down to 0.1 percent, which the FX market has already picked up on. In addition Governor Lowe also provided the market with a great deal of confidence that the RBA is going to use every tool it has available in its monetary policy kitbag to ensure full employment in Australia is achieved as soon as possible.
To support this aim, Governor Lowe highlighted that the Board will now be focusing on achieving actual inflation within its target band (of 2 percent – 3 percent) rather than forecast inflation when it is considering making changes to the cash rate. Further, the RBA will potentially be engaging in open market operations to target 10-year Treasury bonds yields, in order to be more internationally competitive. These two messages are incredibly important in the context of delivering greater certainty to investors and employers regarding what the likely path of interest rates will be into the medium term.
This whatever-it-takes monetary policy setting, particularly the QE elements of it – combined with the recent announcement in the Federal Budget with respect to onus of responsibility for borrowing changing from lenders to borrowers – means the Australian economy is likely to become awash with money sooner rather than later. As we saw with countries overseas during the GFC, expansion in the money base for a country doesn’t necessarily lead to generalised price inflation, but it tends to lead to asset price inflation. This is likely to provide a positive wealth effect for owners of assets such as stocks, houses and bonds. Over time policymakers may need to consider the distributional consequences of these types of policies, which are essential right now but may widen the gap between ‘haves’ and ‘have-nots’ in our society as asset price increases puts them further out of reach.
Today’s Labour Force survey shows that the Australian economy was continuing to recover in September despite the unemployment rate ticking up to 6.9 percent. The 2nd wave lockdown in Victoria saw that State’s labour force decline by more than 35,500 workers, which more than wiped out the employment gains that have been slowly occurring elsewhere in the country.
Today’s data also allows greater insight as to whether there is a differentiation between how the labour market is treating men and women. KPMG’s analysis shows that women experienced sharper job losses in April and May than men, but since then – with the exception of September – women returned to the workforce at a faster pace than men. The only reason this national trend did not continue into last month was because of a decline of 18,000 female workers in Victoria in September. In fact, the lion’s share of lost female employment in Australia has occurred in Victoria, with about two-thirds of the 195,000 females who have lost their jobs since March 2020 living in that state.