How incoming Reserve Bank director Michele Bullock’s brutally honest comments on interest rates and unemployment have already upset Jim Chalmers
- The next head of the Reserve Bank says unemployment is too low
- Treasurer Jim Chalmers subtly rebuffed Michele Bullock
Comments from the next Reserve Bank governor about the need for unemployment to rise to bring inflation down have already upset Treasurer Jim Chalmers.
Michele Bullock gave a speech last month, Achieving Full Employment, in which she argued that the 3.5 percent unemployment rate was too low and made interest rates likely to rise.
“If unemployment stays too low for too long, inflation expectations will rise, making it harder for policymakers to bring inflation down,” he told the Australian Industry Group forum in Newcastle.
“There is a risk that if inflation expectations take hold and wages respond to that and wage demands respond to that, we end up in a situation where inflation is very hard to bring down.”
Bullock argued that unemployment would have to rise to 4.5 percent for inflation to fall back to the Reserve Bank’s target of 2 to 3 percent, noting that rate hikes were an easier option.
If unemployment rose to that level, a further 149,309 Australians would lose their jobs, as the ranks of the unemployed rose 29.5 percent to 654,809, up from 505,500 today in a labor market of 14.551 million people.
Michele Bullock gave a speech last month, Achieving Full Employment, in which she argued that the 3.5 percent unemployment rate was too low and made further interest rate hikes likely.
‘I mentioned in my speech that our goal is to bring inflation to target over a slightly longer period than countries abroad, and in many ways it might be much easier to raise interest rates; because the official cash equivalent rates abroad are higher than here in Australia,’ he said.
Dr. Chalmers responded subtly, in an opinion piece titled Welcome the Full Employment Debate Overdue, in which he argued that the non-accelerating inflationary unemployment rate, also known as NAIRU, could be lower.
“The Treasury estimates the NAIRU to be around 4.25 percent, but recognizes that there is a lot of uncertainty around it and that it changes over time along with the structure of our economy and the skills of the workforce,” he told The Australian Financial Review.
‘While a useful measure, it does not capture the full potential of our workforce and should not, and does not limit, the government’s ambitions to get more Australians to work.
“If we can reduce these structural sources of unemployment, we can improve the level of full employment that our economy can sustain by pushing the NAIRU statistical measure lower and increasing the speed limit on our economy.”
Dr Chalmers announced on July 14 that Ms Bullock will replace Philip Lowe on September 18 when his seven-year term expires.
Ms. Bullock has been a deputy governor of the Reserve Bank since April 2022 and attended all 12 board meetings where interest rates were raised.
The most aggressive monetary policy tightening since 1989, which pushed the cash rate to an 11-year high of 4.1 percent, has eased inflationary pressures.
The annual consumer price index fell to 6 percent in June, down from 7 percent in the March quarter and a 32-year high of 7.8 percent at the end of 2022.
The RBA doesn’t expect it to drop back to three percent until mid-2025.
Treasurer Jim Chalmers has responded subtly, in an op-ed titled Full Employment Debate Welcome Overdue, where he argued that the non-accelerating inflationary unemployment rate, also known as NAIRU, could be lower.
Despite the rate hikes, recruiting firm Robert Half said only 11 percent of employers planned to lay off staff or impose a hiring freeze in the second half of 2023, and unemployment in June fell again. to a minimum of 48 years of 3.5 percent.
The online survey of 300 hiring managers, conducted in June, also found that 46 percent planned to hire over the next six months.
Robert Half director Nicole Gorton said recent rate hikes and inflation concerns had yet to dent hiring intentions.
“The skills shortage in Australia continues,” he said.
“While companies continue to take a cautious approach to expanding their teams, they understand that having cutting-edge technical capabilities on their side to replace vacant positions is essential to staying ahead and starting the new financial year strong.”