RBA: “Good News” On Growth, Monitoring Implications For Inflation & Jobs
Sep-30 06:18
RBA Governor Bullock said that monetary policy is “a bit restrictive” but the bank doesn’t know how restrictive it is but it’s neither “very restrictive” nor expansionary. Therefore, decisions will be made on a meeting-by-meeting basis and will be highly data and outlook dependent. She stated that it is “good news” that activity is picking up but the Board will watch what this means for inflation and employment going forward.
- The aim remains for inflation to be around 2.5%, if it looks like that will be missed then the Board will have to re-evaluate its stance. While it is good news that increased wealth is supporting a consumption recovery, the RBA is concerned about a number of CPI components and therefore remains cautious and is monitoring developments.
- RBA is concerned about market services inflation as it reflects labour market trends and has also been sticky overseas. It will now reassess how far it has it moderating in its projections.
- It included a scenario where businesses increase their cost pass through if demand strengthens but the bank is not yet seeing evidence of this including from its business liaison programme.
- Bullock said that while the monthly CPI is volatile, it still contains information but needs analysis and shouldn’t be taken at face value. While the ABS will begin a full monthly CPI from November, the RBA will continue to focus on quarterly trimmed mean for another 18 months thereafter as seasonal adjustment factors develop.
- The labour market has eased and the RBA expects it to ease further but the monthly data are volatile and so it is best to look at the 3-month average. While employment growth has slowed, there is still evidence the labour market remains a “little bit tight” while vacancies and surveys are not suggesting “mass layoffs”.
Want to read more?
Find more articles and bullets on these widgets:
Historical bullets
RATINGS: S&P Upgrades Portugal To A+ From A
Aug-29 20:28
S&P has upgraded Portugal's long-term credit rating to A+ from A, with a stable outlook (had been positive).
- This is the 7th S&P upgrade for Portugal, from a low of BB in 2012-15. Only four ratings are higher (AA-, AA, AA+, AAA). This is the same rating as Slovakia, and just above Spain (A) per S&P.
- Per Bloomberg: "*S&PGR UPGRADES PORTUGAL TO 'A+' ON LOWER DEBT; OUTLOOK STABLE"
STIR: Still Eyeing September And December Cuts
Aug-29 20:16
With few market-moving data points this week, implied Fed rate cuts essentially held onto their post-Jackson Hole upward repricing, adding a couple of basis points of easing for good measure heading into the Labor day weekend.
- Indeed, the lack of movement is somewhat remarkable given this week's extraordinary "firing" of Fed Governor Cook, which is currently being fought out in the courts. In all it probably added to the dovish tone on the near-term rate outlook post-Jackson Hole but not substantially so, at least so far.
- The current path sees a September rate cut priced with nearly 90% implied probability, with 56bp of cuts through end-year (a cumulatively priced second cut in December) and 83bp through March 2026 (3+ cuts).
MACRO ANALYSIS: MNI US Macro Weekly: One Week, Two Labor Days
Aug-29 20:10
We've just published our latest US Macro Weekly - Download Full Report Here
- A busy pre-holiday week for data brought mixed economic signals and little net change in Fed easing expectations, putting next week’s labor day – Friday with its nonfarm payrolls report, of course, with apologies to Monday’s federal holiday – in focus for the FOMC and market participants alike.
- Second-quarter GDP was revised up by more than expected in the second reading, to 3.3% Q/Q SAAR, driven by better-than-previously estimated domestic demand but still leaving 1st half growth in slightly weaker territory vs last year. That said, the Atlanta Fed's Q3 GDPNow estimate jumped to 3.47% (though the implied contribution from net exports in the quarter looks somewhat dubious, as we explain).
- The other major release of the week was July's Personal Income and Outlays report, which showed a modest uptick in income and spending on the month. However, the broader trends remain mixed at best, as real disposable income growth remains soft and services consumption is failing to regain traction.
- Core PCE inflation was close to expectations in July as the Y/Y accelerated to 2.9% for its fastest since February as it moves further away from recent lows of 2.6% having stalled above the 2% target. Recent trend rates are a little hotter but the median FOMC member will still need to see a further acceleration to meet their 4Q25 forecasts from June.
- Labor data were mixed. Latest jobless claims were in line to slightly better than expected, with initial claims trending a little higher but still impressively low whilst continuing claims are broadly plateauing after sharper increases in 1H25. But within the Conference Board consumer survey, the labor differential edged lower again, suggesting a continued upward trend in the unemployment rate.
- Elsewhere: regional Fed activity surveys were individually mixed, but combined generally showed an improvement in both manufacturing and services activity albeit with continued upside price pressures.
- Consumer sentiment (UMichigan and Conference Board surveys) and housing activity remained soft.
- Apart from Gov Waller again making the case from rate cuts, other FOMC colleagues who commented this week were a little more guarded when it came to the need for easing, to our ear.
