Treasurer Jim Chalmers has denied he took the “wrong approach” and was “too slow” on tackling inflation, following the announcement on Thursday the US Federal Reserve will cut interest rates by half a percentage point.
The US Federal Reserve is kicking off what is expected to be a steady easing of monetary policy with a larger than usual reduction in borrowing costs following growing unease about the US job market.
WATCH THE VIDEO ABOVE: US cuts interest rates for first time in four years.
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This is its first rate cut in more than four years.
In a statement, US Federal Reserve Governor Michelle Bowman said inflation was moving towards 2 per cent, and the risk to achieving its “employment and inflation” goals were roughly in balance.
The Fed’s target range for the rate now stands at 4.75 per cent after the half a percentage point cut, compared to Australia’s cash rate of 4.35 per cent.
It is expected the rate will fall by another half a percentage point by the end of this year, and another full percentage point by 2025, and by a final half of a percentage point in 2026.
However, Australia’s Reserve Bank Governor Michele Bullock has signalled interest rates were unlikely to be cut before Christmas.
On Thursday, Treasurer Jim Chalmers was grilled by Sunrise hosts Nat Barr and Matt Shirvington, over the Fed’s move and what it meant for Australia’s rate.
“I know you will say interest rates went higher in the US and their rate is still slightly higher than ours. The point is they have tackled inflation, haven’t they? We haven’t … did Australia take the wrong approach? Should we have gone harder earlier?” Barr asked.
Chalmers fired back at the question, saying: “You’re right to point out they went up by more in the United States than they did here. Their inflation also peaked much higher and earlier than it did here. They’re further along the track than we are,” Chalmers said.
“For us here in Australia, we have seen a really substantial moderation in inflation. Remember, the year that we were elected it was almost 8 per cent. It’s less than half that now.”
Barr asked if Australia was in a “technical recession”, but this was dismissed by Chalmers who said the government had been upfront about the economy’s slow growth.
“It’s growing slowly because of the culmination of global economic uncertainty, persistent inflation, and also the higher interest rates and all those things are combining to slow our economy and soften our labour market,” Chalmers said.
“What we’re trying to do, we’re going for a soft landing in our economy … our opponents and our critics want a hard landing — they would rather the economy go backwards and inflation rates and interest rates go higher.”
Barr then grilled Chalmers about economic management and relief for cost-of-living pressures, to which the treasurer responded by noting the pension and JobSeeker rates going up again this week.
“(This is the) best and responsible way that we can take off the edge of cost-of-living pressures, but to do that in the most responsible way (without raising inflation),” Chalmers said.
Despite successive interest rate hikes, Australia’s inflation increased from 3.6 per cent in the March quarter to 3.8 per cent in the July quarter, according to the Reserve Bank.
The inflation target remains between two and 3 per cent.
Earlier this month, Chalmers proved to be at odds with the Reserve Bank over the role of government spending in fuelling inflation, particularly Labor’s $300 power bill relief plan.
Chalmers said forecasts showed the government’s cost-of-living policies were “helping to push inflation down in the near term, not up”, according to RBA forecasts.
“The new forecast from the Reserve Bank is that the Reserve Bank’s near-term inflation forecasts are better, not worse. And that’s because of the design of our cost-of-living policies. In addition to our cost-of-living policies, the governor has previously said our surpluses are helping as well,” he told ABC Radio.
“And all of that means that inflation would be higher without our efforts in the budget.”
— With AAP
