STEPHEN JOHNSON: Why a Labor Left motion to stop the Reserve Bank from raising interest rates is a bad idea

Elements of Anthony Albanese’s Left faction and Donald Trump have something in common - they both loathe central bank independence.

Ahead of Labor’s national conference in Adelaide later this month, Melbourne-based land rights lawyer Julijana Todorovic is co-sponsoring a motion to discourage the Reserve Bank of Australia from raising interest rates, hoping this will win back the voters flocking to One Nation.

“Labor recognises that use of interest rate rises to curb inflation is a blunt instrument which hurts workers and vulnerable Australians first and hardest, rather than the asset class which plays a greater role in rising inflation,” it said.

“Labor will consider the appointment of board representatives to the Reserve Bank Monetary Policy Board who have a variety of skills and industry experience, including worker representatives.”

This call is being made little more than a year after the Albanese Government’s Treasurer Jim Chalmers established a new, specialist Monetary Policy Board, made up mainly of economists and corporate leaders, to decide interest rates on behalf of the Reserve Bank.

The idea was to entrench the RBA’s independence, bolstered by expertise on price pressures and the labour market.

While the motion backed by Ms Todorovic, from Victoria’s Socialist Left faction, says “Labor will maintain an independent Reserve Bank”, the call to stack the RBA’s Monetary Policy Board with union officials smacks of political interference.

She is also a co-convener of Labor for Housing who had successfully campaigned to scrap the 50 per cent capital gains tax discount for investment properties, so she has some clout.

Dr Chalmers is understood to have rejected this proposal from the PM’s own Left faction, which would undermine its independence to maintain price stability and full employment.

But should this idea get up, no union official appointed to a Reserve Bank board would vote to increase interest rates if they wanted to be re-elected by rank-and-file members or gain Labor pre-selection.

While former ACTU secretary Bill Kelty served on the Reserve Bank board from 1987 to 1996, he was a union leader from a different era who sought to curb excessive wage rises as part of an accord, with Labor prime minister Bob Hawke’s government, to keep a lid on inflation.

In any case, Mr Kelty didn’t have ambitions to be a Cabinet minister and would never go into Parliament.

The latest call from within the PM’s Left faction, for a bit of Reserve Bank populism, was made days before the International Monetary Fund on Wednesday night warned that political interference with monetary policy was a recipe for higher inflation and interest rates.

“Under renewed inflationary pressures, even perceptions of political pressure on independent central banks and other economic institutions could weaken policy credibility and de-anchor inflation expectations, requiring monetary policy to remain tighter for longer to restore confidence,” the IMF’s World Economic Outlook update said.

The broad left of politics doesn’t have a monopoly in wanting to stymie central bank independence, with US Federal Reserve chair Jerome Powell earlier this year staring down President Trump’s attempts to stop him raising rates.

This was in January, seven weeks before the US strikes on Iran revived the inflation dragon.

“No one — certainly not the chair of the Federal Reserve — is above the law,” Mr Powell said.

“But this unprecedented action should be seen in the broader context of the administration’s threats and ongoing pressure.

“I have served at the Federal Reserve under four administrations, Republicans and Democrats alike.

“In every case, I have carried out my duties without political fear or favour, focused solely on our mandate of price stability and maximum employment. Public service sometimes requires standing firm in the face of threats.”

Mr Trump was hardly the first president to politicise monetary policy with one of his Republican predecessors, Richard Nixon, pressuring his hand-picked US Fed chief Arthur Burns to cut interest rates ahead of the 1972 election, which he would go on to win in a landslide.

“Just kick ‘em in the rump a little,” Nixon said in those infamous White House tapes.

The OPEC oil crisis hit a year later and by 1974, inflation had soared to 12.3, up from 3.4 per cent during the 1972 election year.

Australia’s headline inflation rate in May of 4 per cent is higher than when Nixon was re-elected 54 years ago, and in the US, inflation is even higher at 4.2 per cent in a nation which, unlike Australia, hasn’t had a rate rise since 2023.

For good measure, One Nation leader Pauline Hanson - who is often likened to Mr Trump - rejected the idea of a government led by her pressuring RBA governor Michele Bullock and her board to cut interest rates.

“The RBA is totally different to the executive of the Government, so you shouldn’t be influencing and telling them,” she told the National Press Club in Canberra last month.

Labor’s populist-left activists, hoping to win back disillusioned voters now backing One Nation, should take note.