With a Donald Trump presidency, life can come at you pretty fast.
Trump’s Tariffs Send Shockwaves Through Global Markets
The US president announced his long-trumpeted sweeping tariffs last week, and it has completely changed the landscape for interest rates here in Australia.
Since the announcements, share markets have plummeted and fears of a global recession have taken hold.
Financial markets now price in a definite rate cut at the RBA’s next meeting in May, with the possibility of it being as high as 0.5%, as well as at least three more cuts by the end of the year.
These forecasts would have the official cash rate sitting below 3% by 2026.
Recession Fears Drive Interest Rate Forecasts
The main driver of these rapid changes to interest rate forecasts is of course the threat of recession hitting the USA.
“I think the market reaction has been one of shock,” David Bassanese, chief economist with BetaShares, told the ABC.
“The increases in tariffs across the board were much larger than expected and in and of themselves could be big enough to push the US economy into recession.
“So although we’re not directly affected, it’s the indirect effects on the global economy that will hurt us.”
How Rate Cuts Could Impact Australian Mortgage Holders
If the RBA happened to go large in May and cut rates by 50 basis points, as some banks are entertaining, it would mean a monthly saving of $151 for $500,000 mortgage holders.
If the three more predicted rate cuts for the rest of 2025 come to fruition, it would mean a monthly saving of $224 for the same mortgage holders — offering much-needed cost of living relief.
Cheaper Goods and Slower Growth Expected
Former RBA executive Jonathan Kearns, now the chief economist at Challenger, told the Australian Financial Review that since the tariff announcements, interest rates were now heading south.
“It was a game changer and the direction is clear,” he said.
“This is both contractionary for growth and reduces inflation as more goods will be directed to Australia at cheaper prices.”
Uncertainty Looms Over Australia’s Economic Future
One thing is for certain — the pace of change coming from Trump’s administration is fuelling uncertainty and making the future increasingly difficult to predict.
