'Disconcerting': 5 reasons why interest rates wont rise

Tue, 23 Jan 2018  |  

This article first appeared on the Yahoo 7 Finance website at this link: https://au.finance.yahoo.com/news/2332204-002854969.html 

 -------------------------------------------------------

'Disconcerting': 5 reasons why interest rates wont rise

Interest rates are about to rise.

So say a growing number of economists and the money market futures which are now pricing in a 25 basis point interest rate rise in the final quarter of 2018 and a further 25 basis point rise in the second quarter of 2019.

The market and many economists are increasingly optimistic that economic growth, wages and inflation will all of a sudden lift back to levels consistent with a healthy economy. The theory is that as a result of this good economic news, the hand of the RBA will be forced to hike rates from what are currently record lows. To be sure, these interest rate rises could happen over that time frame. It would be a most welcome development to see interest rates move higher as it would be a sign of a return to favourable economic conditions for the first time in many years.

But just how reliable are the forecasts and the market pricing?

The rising interest forecasts are, for the moment, overlooking a number of hard facts on the economy.

Those facts include the last two years where inflation has been below the bottom of the RBA target band, almost a decade of below trend GDP growth, wages growth stuck near record lows, the unemployment rate unable to sustain a break below 5.5 per cent and the underemployment rate just a few decimal points below a record high.

These fundamentals are, at the very least, disconcerting.

The scenario for higher interest rates is all the more problematic when account is taken of the falls in house prices now unfolding and with the Australian dollar at 80 US cents, a level that is starting to hurt the export sector.

Frankly, it is absurd to think the RBA would hike rates with this sort of scorecard on the economy. Indeed, the persistent miss of the inflation target and the stubbornly high unemployment rate demands lower, not higher rates.

Much has been made of the record level of household debt, the vast bulk of which is leveraged in the housing market. With house prices now falling (Sydney prices are down 3 per cent since September) and household debt levels still rising, albeit at a slowing rate, the net wealth buffer that had been supporting consumer sentiment and spending will start to erode, even with unchanged interest rates.

Also importantly and quite plainly, interest needs to be paid on that high debt level.

In simple terms, 50 basis points of interest rate rises over the next 18 months would add around $8 billion to the annual interest cost of all mortgages outstanding. That is $8 billion that will be diverted away from consumption, savings or debt reduction. At a time when household consumption growth is soft, this would risk pushing overall growth lower from an already soft starting point.

It is an old cliché the data will determine what happens.

But here there is a timetable of critical events in the next month that will help to flesh out the scenario for or against higher interest rates.

Critically important is next week’s inflation data. If the underlying inflation measures favoured by the RBA show yet another quarter where annual inflation is under 2.0 per cent, the case for rate hikes will be severely dented.

The health of consumer finances will then be tested with retail sales (6 February), employment and unemployment (15 February) and the wage price index (21 February). Will the strong rise in retail spending inspired by the release of the latest iPhone be reversed? Will the unemployment fall from 5.5 per cent? And vitally important, will there be any evidence of upside to wages growth which is the vital element for household incomes and spending?

The answer to these questions will go some way to determining the outlook for interest rates and whether the expectations for hikes are based on wishful thinking or based on hard facts.

comments powered by Disqus

THE LATEST FROM THE KOUK

How Labor lost the federal election SO badly

Thu, 07 Nov 2019

This article first appeared on the Yahoo Finance website on 20 May 2019 at this link:  https://au.finance.yahoo.com/news/why-labor-lost-the-election-so-badly-211049089.html 

----------------------------
How Labor lost the federal election SO badly

The Coalition did not win the election, Labor lost it.

The tally since 1993 for Labor is a devastating seven losses out of nine Federal elections. By the time of the next election in 2022, Labor will have been in Opposition for 23 of the last 29 years. Miserable.

The reasons for Labor’s 2019 election loss are much more than the common analysis that Labor’s policy agenda on tax reform was a big target that voters were not willing to embrace.

Where the Labor Party also capitulated and have for some time was in a broader discussion of the economy where it failed dismally to counter the Coalition’s claims about “a strong economy”.

In what should have been political manna from heaven for Labor, the latest economic data confirmed Australia to be in a per capita recession. This devastating economic scorecard for the Coalition government was rarely if ever mentioned by Labor leader Bill Shorten and his team during the election campaign.

This was an error.

If Labor spoke of the “per capita recession” as much as the Coalition mentioned a “strong economy”, voters would have had their economic and financial uncertainties and concerns confirmed by an elevated debate on the economy based on facts.

This parlous economic position could have been cited by Labor for its reform agenda.

Why animals are a crucial part of the Australian economy

Thu, 07 Nov 2019

This article was written on 31 October 2019: It was on the Yahoo Finance website at this link: https://au.finance.yahoo.com/news/animals-crucial-australian-economy-192927904.html 

------------------------------------------------------

Why animals are a crucial part of the Australian economy

Animals are a critical part of the Australian economy, either for food, companionship or entertainment.

But every month, millions of sheep, cattle, pigs, chickens, fish and other animals are bred and then killed. Most of them are killed in what we define as ‘humane’, but no doubt tens of thousands are horribly mistreated, as are a proportion of the animals we keep as pets.

Animals are slaughtered to provide food for human food consumption, to feed other animals (your cats and dogs are carnivorous) and for fertiliser.

The Australian Bureau of Statistics collects a range of data on animal slaughterings and the most recent release of the Livestock and Meat data release included the following facts.