Can the World Economy Avoid Entering a Doom Loop?

You mentioned that the day after the RBA hiked rates, we had another pretty gloomy inflation reading.

Inflation remains above the RBA target.

Michelle Bullock has said that these rate hikes will take time to move inflation lower, but do you think we're potentially seeing the limits of what monetary policy can do to address inflation?

So it's a very topical debate at the moment, but the short answer is no, that if the central bank wants to tame inflation, it can do so purely through the interest rate mechanism.

What makes that tricky is that it doesn't really wanna trigger a recession and a huge labor market dislocation when it's doing so.

So monetary policy can tame inflation if it wants to.

The other part of the story is just that monetary policy does have these long and variable lags.

It's gonna take time.

It could be between one and two years for the full impact of a given rate increase to take its full effect on the economy.

But because if they've got this constant drumbeat of news around inflation and interest rates, we're not a particularly patient bunch.

Waiting for that to play through is tricky.

Where would you think, then, Mark, we're at with this interest rate cycle?

So I think we're drawing to a close.

I mean, if you put this into perspective, as I say, we've had four rate increases so far since the start of the year.

That's a hundred basis points.

Each one was twenty-five.

If you look back over the current century, and I think if you go and...

There's some charts in a, one of my more recent notes here, and you look at previous tightening cycles, this is very modest compared to previous periods of rate increases.

So right at the start of the century, so late '90s into the early 2000s, we had about a hundred and fifty.

Basis points.

That's kind of the most modest tightening cycle over the period, so we're still currently 50 basis points shy of that.

If you look at the post GFC, I guess it's the normalization cycle after rates had come down to cushion the economy from the global financial crisis, we had about 175 basis points of tightening then before the RBA started to ease again.

So 100 is pretty modest.

I mean, I think the consensus now is that we'll probably get at least one more, so we'd do about 125.

I suspect as we hit 125, we're probably there or thereabouts, but we're subject to a whole bunch of ifs, buts, and maybes, not least if you think about one of the big drivers here, it's what's happening in the Middle East.