Macro
Today I write that the RBA's Phil Lowe has effectively declared war on the government's fiscal policy stance in an attempt to sheet home blame for the RBA's inability to hit its legislated inflation and employment objectives. Rather ironically, one of the government's greatest critics, the inimitable Stephen Koukoulas, has correctly leapt to their defence, calling on the RBA to pull its head in and focus on delivering on a mandate that it has failed to meet for years now. Click on that link to read the column or AFR subs can click here. Excerpt enclosed:
As this column feared, the government is losing control of its otherwise impressive fiscal policy legacy as the Reserve Bank of Australia (RBA) seeks to deflect blame for its failure to hit its legislated inflation and employment targets. This is emerging as one of the key tests of treasurer Joshua Frydenberg’s political career: does he possess the fortitude and decision-making fidelity that have become hallmarks of Scott Morrison’s astonishing success.
The latest round of efforts to pressure the government to drop its budget surplus, and bail monetary policy out, predictably started with RBA governor Phil Lowe’s speech on quantitative easing (QE), in which he laid the foundations for a sustained attack on Morrison and Frydenberg’s parsimony.
Rolling out QE might “create an inaction bias by other policymakers”, including the “the fiscal authorities”, that could “lead to an over-reliance on monetary policy” Lowe warned, foxing ahead of the government's May budget.
If there was any doubt as to what Lowe was signalling to his economics and media acolytes, he doubled-down, imploring that “we need to remember that monetary policy cannot drive longer-term growth… that there are other arms of public policy than can sustainably promote both investment and growth”. Sharp Jab to Frydenberg’s bloodied nose.
In the Q&A after the speech, Lowe dusted the treasurer up again, arguing that before he is forced into doing QE he would “hope that other arms of policy would be doing something as well”. “It would be all arms to the wheel, wouldn’t it?” Answering this rhetorical question, the Martin Place mandarin responded, “It should be whether that happens or not” with the implication that perhaps it might not be at present.
Lowe’s parting words were akin to verbal ground-and-pound: “Remember, monetary policy is not the solution to every problem. There are other [fiscal?] solutions…that might be more attractive or might not – I don’t know”. But, of course, he does: Lowe knows exactly what he is doing, unleashing the dogs of war on Canberra's fiscal felines.
The message is that monetary policy is not to blame for the RBA failing to deliver inflation within its target band and a jobless rate consistent with full employment since Lowe was first appointed governor three years ago.
He has shifted the cross-hairs smack-bang on to Frydenberg’s increasingly spartan dome. Unsurprisingly, his many disciples immediately pulled the trigger.