Has the RBA cut rates too soon?
Barrenjoey chief economist Jo Masters was one of the few economists who did not expect the Reserve Bank to cut rates in February.
She says it is too soon to tell if the central bank made a mistake.
But she says it is clear the rate cutting cycle will be slower and longer had the RBA waited to act.
Rather than the four rate cuts priced in by the market, Jo Masters says two are more likely this year.
She says the strong labour market remains a risk to the RBA’s fight against inflation.
Jo Masters says it is too soon to call victory on a soft landing for the Australian economy, which continues to face many risks, not least of which is global uncertainty and possible inflationary pressures of the Trump administration’s policies and tariffs.
Watch this interview from Business Host Kirsten Aiken.
RBA governor warns further rate cuts aren’t guaranteed
The Reserve Bank has cut interest rates, lowering the cash rate by 0.25 percentage points to 4.1 per cent.
The RBA acknowledged inflation had eased but said it remained cautious about the outlook. It is a reprieve for mortgage borrowers after the central bank hiked rates on 13 occasions between May 2022 and November 2023, before leaving the cash rate on hold for more than a year.
The big four banks, ANZ, Commonwealth Bank, NAB and Westpac passed on the rate cut in full within minutes of the RBA decision.
RBA governor Michele Bullock says further rate cuts aren’t guaranteed because the fight against inflation hasn’t been won yet. Treasurer Jim Chalmers says “Australians need and deserve” the rate relief.
Watch this story from Business Reporter David Chau.
You can read more about rate cut from Business Reporter Stephanie Chalmers.
Wall Street slips as Fed policy eyed
Wall Street dipped on Tuesday as investors showed little conviction at the top of a holiday-shortened week with earnings season winding down and geopolitical and trade uncertainties holding risk appetite in check.
The three major stock indexes wobbled between red and green for much of the session, but slipped into negative territory in the afternoon, weighed down by Meta, Amazon and Alphabet.
“We’re seeing a little bit of a lull in the market,” said Chuck Carlson, chief executive officer at Horizon Investment Services in Hammond, Indiana. “There aren’t a whole lot of catalysts right now that can drive the market one way or the other, and because of that, you kind of get days like this.”
“Investors are playing it pretty close to the vest today,” Carlson added.
On Wednesday, the US Federal Reserve is expected to release the minutes of its January policy meeting, at which the voting members elected to let interest rates stand amid signs of an inflation rebound and the unknown extent and effects of President Trump’s threatened tariffs.
Remarks from US Federal Reserve policymakers largely adhered to the same script, with Philadelphia Fed President Patrick Harker, Governors Michelle Bowman and Christopher Waller saying they believe economic strength and elevated inflation warrant holding the policy rate steady for the time being.
San Francisco Fed President Mary Daly reiterated that a pause in rate cuts is appropriate until more visible progress is made toward bringing inflation down to the Fed’s 2% goal.
The minutes will be scrutinized for clues regarding the central bank’s path forward, particularly in light of recent data, which shows price growth gaining momentum, falling consumer sentiment and weaker-than-expected retail sales.
“The Fed is being reasonably transparent here,” Carlson said. “There’s been evidence that the economy is slowing down a little bit and I’m sure they’re watching that. But I don’t think they feel significant pressure, at least at this point, to drop rates anytime soon.”
ASX to waver
Good morning and welcome to Wednesday’s markets live blog, where we’ll bring you the latest price action and news on the ASX and beyond.
A tumble on Wall Street overnight sets the tone for local market action today.
The Dow Jones index dropped 0.3 per cent, the S&P 500 was flat and the Nasdaq Composite down 0.3 per cent.
ASX futures were down 5 points or 0.03 per cent to 8,438 at 7:00am AEDT.
At the same time, the Australian dollar was down 0.1 per cent to 63.49 US cents.
Brent crude oil was up 0.8 per cent, trading at $US75.79 a barrel.
Spot gold gained 1.2 per cent to $US2,933.29.
Iron ore rose 1.1% to $US106.85 a tonne.
