Australia is unlikely to follow in the United States’ footsteps just yet in slashing interest rates because the economic conditions are so different, the Prime Minister and Treasurer have cautioned.
Overnight, the US Federal Reserve decided to bring its key lending rate down by 0.5 points to between 4.75 and 5 per cent, amid growing concerns about an economic slowdown.
It was the first rate cut since early 2020 and suggests a shift in strategy away from fighting inflation to preventing a rise in unemployment and a bid to squash fears of a recession.
Jim Chalmers said while the news out of the US was “pretty much expected”, Australia was in a different situation.
“The global economy is a pretty uncertain place, that’s one of the reasons why we’re seeing these rate cuts in places like the US,” he said.
“When it comes to the Australian situation, we’ve got inflation coming off pretty substantially. The Reserve Bank will weigh that up.”
The Reserve Bank decided to keep Australia’s cash rate steady at 4.35 per cent at the last meeting, and governor Michele Bullock declared a rate cut on this side of Christmas was highly unlikely.
While inflation has come down significantly from its peak, getting it back into the RBA’s target of three to four per cent is proving difficult.
Anthony Albanese said inflation, and interest rates, had “peaked higher in the US” than in Australia. There, inflation peaked at 9.1 per cent in July 2022, significantly higher than 0.1 per cent in May 2020.
“Here we peaked at 4.35 (per cent interest rates), but in most of the western world it exceeded five per cent and far above,” he told ABC Radio.
“So what we have done is attempt to manage the economy in a way that looked after people on the way through.”
The Reserve Bank will meet next week to decide next steps with interest rates, and will be guided in part by the latest employment figures — due out on Thursday morning.
“Inflation had a six in front of it when we came to office, it’s halved since its peak in that year that we were elected, but we need to see it come down a bit more, and we’ll get some new inflation figures in the middle of next week which will tell us a bit more about how we’re going,” Mr Chalmers said.
Mr Chalmers said the Labor government had overseen a ”pretty remarkable feat” in keeping unemployment so low while getting inflation under control.
“But in the context of a slowing economy and a softening labour market, creating a million jobs under this Albanese Labor government is a pretty remarkable feat,” he said.
“It’s a tribute to our people, the economy, employers, and workers.”