The federal government is increasingly giving Reserve Bank governor Philip Lowe the cold shoulder while the world’s central banks are paying him serious attention.
The biblical line “no prophet is accepted in his own country” comes to mind.
No, Dr Lowe is not a prophet, but the collective wisdom of the central banking community is taking him much more seriously than his erstwhile boss, Treasurer Josh Frydenberg.
The speech Dr Lowe gave in Jackson Hole, Wyoming, over the weekend was a major statement on behalf of central banks about the dangerous follies at large in international politics.
Dr Lowe’s speech was not merely “remarks at Jackson Hole Symposium”, as the RBA underplayed it.
His was the centrepiece of the symposium’s summary session panel – it was a compliment for him to be asked to fill that role.
Dr Lowe wasn’t just talking about the RBA when he warned politicians were expecting too much of central banks.
We have become used to him stating the obvious that low interest rates can’t drive long-term growth, but this speech was also telling Donald Trump to stop being an idiot in his treatment of America’s Federal Reserve Board.
OK, not quite in those words, but the meaning was clear to anyone not as obtuse as Mr Trump.
“As we have discussed at the symposium, growth in aggregate output and incomes in many countries is weaker than we would like and there are clear downside risks,” said the governor.
“Reflecting this, in some political systems (my emphasis not his) and in some parts of the community, there is a strongly held view that the central banks should fix this. At the same time, they should address income and wealth inequality and deliver economic prosperity for the whole community.”
Obviously, monetary policy simply can’t do that.
Dr Lowe’s subsequent call for other policies to be brought to bear is familiar to Australian ears, but with one extra dimension right off the top: “The first is to reduce the political shocks. I will leave it to others to speculate as to how likely this is to occur. If it did occur, the global economy could look forward to better times, as firms make up for delayed investment in an environment where monetary conditions remain highly accommodative.”
“Political shocks” is primarily a euphemism for Mr Trump, with supporting roles for follies ranging from Brexit to whatever is happening with the Italian government.
While Prime Minister Scott Morrison is revelling in getting a little attention from Mr Trump and putting Australian forces at an erratic president’s disposal, our central bank is calling out the US president as a threat to the global economy.
So who’s this fella from little ol’ Australia to be given such a job at the Jackson Hole central bankers’ love-in?
What’s overlooked at home is that aside from being the RBA governor, Dr Lowe chairs the Bank for International Settlements’ Committee on the Global Financial System.
As the BIS describes it, the CGFS “has a mandate to identify and assess potential sources of stress in global financial markets, to further the understanding of the structural underpinnings of financial markets, and to promote improvements to the functioning and stability of these markets”.
That’s a very important gig in central banker land. It gets the chairman to deliver the kickass Jackson Hole summary speech.
Yet, in his own country, Dr Lowe is being treated with contempt by the Treasurer.
The governor’s repeated pleas for greater fiscal and structural help have been ignored, Treasurer Frydenberg embarrassed both the institution and the man by dragging him into an excruciating photo op, and now there’s a curious matter of a lengthy delay in finalising the usual post-election agreement between the Treasurer and governor.
This agreement has normally been concluded in days, or certainly within weeks. It’s now more than three months and counting.
That leads to speculation that the agreement is either a very low priority for Mr Frydenberg – heaven knows he doesn’t seem to have any other policy initiatives to distract him – or there’s some haggling going on over holding the RBA more formally accountable for its inflation target.
Dr Lowe’s Jackson Hole speech pointedly defended the importance of flexibility in meeting inflation targets. Any attempt to make it more rigid would compromise the RBA’s independence.
It would smack of “some political systems” wanting to place all the responsibility for the economy on the central bank – a convenient excuse when the economy is not going well.
And Mr Frydenberg is likely to be needing all the excuses he can find in the next little while.
Tomorrow week, we’re scheduled to get the June quarter national accounts. As previously reported here, after six years of Coalition government, they are likely to show the 2018-19 financial year had the weakest economic growth since 1992 when we were battling our way out of a recession.
When that hits, it could be convenient for Treasurer Frydenberg to claim he is taking action by forcing the RBA to do its job better.
The Treasurer was getting some retaliation in first in his extraordinary speech to the Business Council of Australia on Monday, blaming business for preferring share buybacks and higher dividends rather than investing in new ventures.
He was mercilessly skewered by Crikey’s Bernard Keane as Mr Frydenberg was effectively admitting tax cuts for big business was a dud policy. The Treasurer conceded that productivity growth had fallen under the Coalition.
Business did not take the lecturing kindly, leaving the Treasurer rather friendless ahead of what will be very uncomfortable headlines next week.
Governor Lowe also might have been getting in some retaliation first in Jackson Hole. Economist Jason Murphy spotted a small but interesting variation in what was in Dr Lowe’s published speech and what he actually said.
The speech issued by the RBA at one point had the governor saying: “We can be confident that lower interest rates will push up asset prices and I think that later on we will have problems as a result of that.”
What Dr Lowe actually said was slightly different: “What we can have more confidence in, though is that the monetary conditions will push up asset prices, which brings its own set of risks.”
In the Australian context, that mainly means higher housing prices.
Another housing price boom might provide a sugar hit for a desperate government, but it would be bad for the country soon enough.
Perhaps Dr Lowe was being prophetic.
This article was published by The New Daily on the 27th of August 2019.