US Fed cuts rates for the first time since the GFC

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The US Fed has cut rates for the first time since the Global Financial Crisis and it has put pressure on the Reserve Bank here at home to lower its official cash rate again in the coming months.

Economists say a little spike in the consumer price index in the June quarter should allow the RBA to leave rates steady at 1 per cent when it meets next week.

Despite this, it’s the subdued inflation outlook that has the central bank on its toes, struggling to hit its 2-3 per cent target and it could lead to another cut later this year.

JPMorgan economist Ben Jarman spoke to Australian Financial Review briefly before the anticipated Fed rate cut yesterday and discussed the implications for the RBA.

“The RBA’s two recent interest rate cuts were influenced by the Fed signalling its shift towards easing,” he said.

“The global central bank impulse is to ease monetary policy and that puts pressure on the RBA to do something to help the currency provide stimulus.”

Kieran Davies from the National Australia Bank told AFR he expects rates to remain unchanged next week.

“Annual underlying inflation was marginally below Reserve Bank expectations, such that there this a little pressure on the bank to trim its near term inflation outlook when it finalises its revised forecasts ahead of next Tuesday’s board meeting,” he said.

“We expect the board to remain on hold at 1 per cent in August, and to continue to signal a willingness to do more if needed.”

“We still expect the bank to cut rates again by November, after it receives more information on the labour market, growth and the initial impact of both the government’s tax refunds and the June-July rate cuts.”

The Reserve Bank wants to see inflation drop below the 4.5 per cent mark to get wages rising and to get inflation rising too.


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