The Federal Reserve of Australia released the minutes of its October monetary policy meeting. The minutes show that the Federal Reserve of Australia is considering raising interest rates again this month, but believes that the possibility of maintaining interest rates unchanged for the fourth time is "greater", indicating that under the leadership of the new chairman, Michelle Bullock, the cautious policy stance of the Federal Reserve of Australia has a certain degree of continuity.
The meeting minutes also showed that due to concerns that the Federal Reserve of Australia has raised interest rates by 4 percentage points since May 2022, bringing the cash rate to 4.1%, which may slow the economy more severely than expected, it has chosen to keep interest rates unchanged. The committee members pointed out the lag in policy transmission and pointed out that the rise in borrowing costs has begun to align demand with supply.
The reason for maintaining the cash interest rate target unchanged at this meeting is mainly due to the significant rise in interest rates in the short term, and the impact of tightening policies will not be fully reflected in economic activity and inflation data in the coming months. In addition, the labor market has reached a turning point
Australia's benchmark policy interest rate is lower than many other developed countries, despite inflation rates being at essentially the same high level. In the current tightening action, the Federal Reserve of Australia has raised interest rates by 4 basis points, lower than the 5.25 basis point range in the United States and New Zealand. In a situation where inflation is "far above" the Federal Reserve of Australia's 2-3% target, rate hikes are still an option, although the central bank has hinted that this requires unexpected upward economic data. Economists expect another interest rate hike later this year, while financial markets believe that the tightening cycle is nearing its end.
The employment market in Australia remains tight, with the unemployment rate hovering between 3.4% and 3.7% over the past year. Other economic data shows a reasonable driving force, business conditions show sustained resilience, and job vacancies remain high. The country's residential real estate market has also unexpectedly rebounded strongly this year.
The Federal Reserve of Australia stated that members "have noted that although the rise in housing prices itself is not sufficient to support tightening policies, the related growth in household wealth may provide more support for consumption than current assumptions, especially if housing trading volume rebounds faster than expected. The rise in housing prices may also be a signal that the current policy stance is not as restrictive as people imagine.
The reason for raising interest rates is focused on the risk that inflation may be more challenging than expected, and may not meet the current forecast that inflation will fall back to the target range of 2-3% by the end of 2025. The meeting minutes show that the committee has a low tolerance for inflation returning to the target speed below current expectations. Therefore, whether further interest rate hikes are needed will depend on the upcoming data, as well as how these data can change the economic outlook and assess risks