DAVID KOCH: Michele Bullock’s powerful, down-to-earth approach is different from former ‘nerdy’ RBA governors

David Koch
The Nightly
4 Min Read
DAVID KOCH: Michele Bullock’s powerful, down-to-earth approach is different from former ‘nerdy’ RBA governors
DAVID KOCH: Michele Bullock’s powerful, down-to-earth approach is different from former ‘nerdy’ RBA governors Credit: The Nightly

Michele Bullock has become Australia’s financial therapist as she breathes new life into the Reserve Bank and the role of governor.

The post-board meeting press conference has been a great initiative (although the US Fed chairman has been doing it for years) and Bullock has handled it well.

Previous RBA governors have been, shall we say, very academic and “nerdy”.

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Bullock, on the other hand, is forthright, very clear in her messaging and approachable.

The press conference puts a “face” to the traditionally faceless RBA board and her down-to-earth approach is powerful.

She connects.

She uses the platform as a financial therapy session to get into the hearts and minds of average Australians.

She knows you can analyse economic data all you want but the key to success is impacting the behaviours of Australians and bringing them along for the ride.

The economy isn’t some inanimate economic model, it’s a reflection of the behaviours of 26 million living, breathing human beings who make important economic decisions as consumers, employers and workers.

Getting inside their heads and influencing those behaviours is a powerful tool for manipulating future economic data.

Bullock knows this is a fragile time for the economy. It has been tough for average Australians to cope with the fastest, sharpest rise in official interest rates in our history while fighting the effects of raging inflation.

The RBA has put the rate squeeze on every Australian household to help bring inflation back under control and towards that 2-3 per cent preferred target range. As a result, unemployment is increasing, business insolvencies are rising and the economy is looking fragile.

But it’s working and inflation is trending down nicely.

The danger for Bullock is that we all let out a collective sigh of relief that the worst is over, rates have peaked, there is light at the end of the economic tunnel, rate cuts are coming and… we all go back out and spend, and inflation comes back.

Yes, we’re past the crossroads but we’re in that sensitive period where all the good work from the economic pain we’ve endured can be reversed, undone and the shock of another rate rise could be needed. That is the last thing we need.

Governor of the Reserve Bank of Australia (RBA) Michele Bullock speaks to the media during a press conference in Sydney, Tuesday, February 6, 2024. (AAP Image/Bianca De Marchi) NO ARCHIVING
Reserve Bank of Australia governor Michele Bullock has been clear the board has not discussed rate cuts, HSBC chief economist Paul Blloxham says. Credit: BIANCA DE MARCHI/AAPIMAGE

The strong debate within financial markets is whether the first rate cut will come in August or later in the year.

So, Bullock the financial therapist lays us all out on her couch explaining that while the anti-inflation campaign is working she would like us to stay in the bunker for a bit longer to make sure the inflation genie stays in the bottle.

Even this week we get told higher interest rates “cannot be ruled out”. It’s why in the Bullock press conference she said the economy and rates “are finely balanced”.

The fear of rising interest rates keeps our behaviour in check.

The RBA statement announcing the decision to keep interest rates on hold again had statements like: “The path of interest rates that will best ensure that inflation returns to target in a reasonable timeframe remains uncertain and the board is not ruling anything in or out”; “We are not ruling out what we might have to do next. We’re not ruling in or out anything”; “The headline monthly CPI indicator was steady at 3.4% over the year to January, with momentum easing over recent months”.

The statement once again made numerous mentions of a “highly uncertain outlook”. Just in case you didn’t get the message there were seven references to “uncertainty”.

Timing is going to be everything for the RBA economy. The ideal is a “Goldilocks” economy — not too hot and not too cold.

Reserve Bank of Australia (RBA) Governor Michele Bullock speaks during the the AusPayNet Summit at the International Convention Centre in Sydney, Tuesday, December 12, 2023. (AAP Image/Bianca De Marchi) NO ARCHIVING
Reserve Bank of Australia Governor Michele Bullock. Credit: BIANCA DE MARCHI/AAPIMAGE

But economies are hard to turn around, both on the way up and the way down. The red hot inflation-driven economy has definitely turned down the RBA targets. But now that downward momentum can’t run away out of control. At some stage, it needs to be slowed, levelled out within the target ranges and stay there.

When it comes to inflation the RBA is now assuming a fall in the annual CPI to 3.3 per cent by June but then it reckons it will take another 18 months to dip down to the 2-3 per cent target range. That, to me, seems a long time for it to dip another 0.3 per cent.

Based on that assumption, the RBA now expects the economic slowdown to be sharper than it expected. It is now forecast economic growth in the June quarter to be 1.13 per cent a year, slower than the 1.8 per cent it previously expected.

The economic growth forecast for the end of the year has also been lowered to 1.8 per cent, while the forecast for late 2025 and June 2026 have been kept the same at 2.4 per cent. Unemployment is expected to rise from the current 3.9 per cent to 4.4 per cent by June 2025.

As you can see the economy is so finely balanced that I suspect we’ll be getting quite a few more sessions with our financial therapist over the coming months.


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