Monday, 24 January, 2022
Terry McCrann – The year will finally and really get underway with two events th
Australian CPI data and US Fed Reserve decision will shake up the economic outlook this week
Australian inflation data and the outcome of the Fed Reserve policy meeting in the US have the potential to dramatically shake up the economic outlook this week.
Terry McCrann
January 24, 2022 – 8:30PM
The year will finally and really get underway with two events that straddle Australia Day.
Tuesday, a day early precisely because of Australia Day, we get the December quarter inflation data from the Australian Bureau of Statistics.
The number will, bluntly and broadly, tell us how quickly and by how much interest rates will go up – something, rising rates, we haven’t seen officially from the Reserve Bank in more than eleven years.
The last time the RBA raised its official interest rate was the day that the rather aptly named Americain won the Melbourne Cup in 2010.
It was for once a horse not owned by Lloyd Williams, owned instead by Australia’s ‘Monsieur Bike’, Jayco caravan king Gerry Ryan, and his good mate Kevin Bamford.
More pointedly, the vast majority of Australians today who have – rather hefty – home loans have never seen and more particularly, never had to pay for, even a single interest rate rise, far less rises, plural.
They’ve always had low rates and rates – and monthly payments – that just kept on falling.
It was financial bliss.
Right now, the RBA’s official rate is 0.1 per cent and that’s the reason why borrowers are getting owner-occupied variable rate home loans around 2 per cent.
That – last – rate rise in 2010 took the RBA’s official rate to 4.75 per cent (after which it started falling and just kept falling) and variable home loan rates over 7 per cent.
Ponder the very different maths of then and now if you have a home loan of $400k or $600k.
Let me hasten to add, I am most certainly not suggesting we will see home loan rates anywhere near 2010’s 7 per cent any-time, as in years, soon.
What I am suggesting is that Tuesday’s CPI number could very sharply accelerate the timing of the RBA’s first rate rise.
That will be significant for home loan borrowers; it will also be very significant for people more broadly and the economy generally.
We’ll get back to you tomorrow.
And then there will be two more sleeps to the results of the first meeting back for the year of the RBA’s big brother, the Fed in Washington.
What the Fed does – or more pointedly does not do, but promises to do manana – will have zero impact on the decision process on the top floor inside the RBA’s building at the top of Martin Place Sydney.
But it will be huge, with a capital-U, for the share market – Wall St initially and then sweeping across the Pacific to Australia: both immediately, as of the last couple of hours trading their Wednesday in New York and then Thursday down here; and then all the way through 2022 and into 2023.
What the Fed should be announcing is an immediate end to its QE money-printing and an immediate lift in its official interest rate of a full 1 per cent (actually I’d take half-a-percent).
But then it should have done that at its last meeting in November, when the US’s 7 per cent inflation had become utterly undeniable.
And indeed it should have done that even months earlier when it was already blindingly obvious – but not to the hundreds of Fed ‘experts’ or indeed former Fed head and now Biden Treasury secretary Janet Yellen – that US inflation was indeed up, up and away.
What we are likely to get from the Fed is an accelerated end to the money-printing – the RBA will do the same at its meeting next week – and the ‘promise’ of its first rate rise at its next meeting mid-March.
So, 2022 is now officially under way: the inflation numbers Tuesday, the Fed and its (non) decision Thursday and then the RBA next Tuesday.
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