A former economic adviser to Barack Obama has criticised Anthony Albanese for being seriously wrong in his figures on the US economy.
Australia’s Prime Minister was asked about the US Federal Reserve cutting interest rates by a whopping 50 basis points, but he got the basic economic data wrong.
“Because the economy is so slow, that’s why (the US) is cutting rates,” Patricia Karvelas told ABC national radio on Thursday.
However, the US economy is booming compared to Australia, with gross domestic product set to grow 3 percent in the year to June 2024.
In contrast, Australia’s economy grew just 1 percent in the last financial year, sinking to levels not seen since a recession.
This was the slowest annual growth since 1991 outside of a pandemic, thanks to the Reserve Bank of Australia’s 13 interest rate hikes.
Betsey Stevenson, who was a member of the Obama administration team Mr Albanese was criticised by the Council of Economic Advisers in X for applying a wrong spin to the US Federal Reserve’s first rate cut in four years.
“This shows he is not listening to the people around him who know anything about macroeconomics,” he said, linking to an article by Daily Mail Australia political editor Peter van Onselen.
Betsey Stevenson, who served on the Obama administration’s Council of Economic Advisers, criticized Anthony Albanese for getting his data on the U.S. economy wrong.
“Australia’s economy is too fragile for that kind of neglect (IMHO).”
Mr Albanese ignored Karvelas when she pointed out that the US economy was growing at a much faster pace than Australia’s.
The US Federal Reserve cut its benchmark federal funds rate by 50 basis points to 4.75 percent from 5 percent, marking the first cut since March 2020, at the start of the Covid pandemic.
“Recent indicators suggest that economic activity has continued to expand at a solid pace,” the US Federal Reserve’s accompanying statement said, adding that “job gains have slowed.”
The US Federal Reserve has joined the European Union, Canada, the United Kingdom and New Zealand in cutting rates this year.
John J. Hardy, chief macro strategist at Saxo, said financial markets had only priced in a 50 basis point cut by the U.S. Federal Reserve as having a 60 percent chance.
“So it’s still a bit of a mild surprise,” he said.
Treasurer Jim Chalmers also made a disingenuous comment on Thursday when he wrongly suggested financial markets had expected the massive US rate cut.
Prime Minister Anthony Albanese wrongly suggested that US economic growth was much slower than Australia’s.
Barack Obama’s former economic adviser tweeted a link to the story by Daily Mail Australia political editor Peter van Onselen.
“I think what we saw in the US overnight was quite expected,” he told Nine’s Today show.
While a rate cut in the US was expected, a 50 basis point easing was not expected.
Reserve Bank of Australia Governor Michele Bullock this month ruled out any rate cuts before Christmas.
This is because Australia’s inflation rate of 3.8 percent is much higher than the US level of 2.5 percent and well above the Reserve Bank of Australia’s 2 to 3 percent target.
But Australia’s cash rate of 4.35 per cent, while at its highest level in 12 years, is still lower than equivalent policy rates in the US, UK, EU, Canada and New Zealand – something Dr Chalmers got right.
“It’s very important to remember that rates rose more in the United States than in Australia,” he said.
‘Even after this overnight interest rate cut in the United States, interest rates are still higher there than here.’
Although Australia’s economic growth is weak, the labour market remains strong: unemployment in August remained at 4.2 per cent and 47,500 jobs were created.
Commonwealth Bank, Australia’s largest mortgage lender, now expects the RBA to cut rates by 25 basis points in December rather than November.
But Gareth Aird, the bank’s head of Australian economics, said the Reserve Bank would want more details on inflation and the labour market before acting.
“We now believe that the RBA board will need to see and assess this more comprehensive set of data before it is prepared to join other central banks in cutting rates in 2024,” he said.