Has there ever been a less credible governor of the Reserve Bank than Philip Lowe at this point?
Earlier this week, Australia’s most senior and authoritative economics columnist, Ross Gittins, fired a remarkable broadside at Lowe, accusing him of being dishonest to a parliamentary committee, of partisanship with big business against workers, and of being “happy for ordinary workers to suffer”.
Sure, other governors, and Lowe himself, have been the target of tabloid criticisms at times of rising interest rates. No one, except inflation hawks and savers, likes rate rises, and pushing rates up will never win you a popularity contest. But the harsh criticism of Gittins — who has probably forgotten more central bankers than the rest of us have ever known — is a very different, and far more serious, matter.
And Lowe did himself no favours yesterday when, the day after the RBA board lifted rates yet again, he told an event held by US bank Morgan Stanley that “if people can cut back spending, or in some cases find additional hours of work, that would put them back into a positive cash flow position.”
While Lowe may have been trying to sound helpful to Australians battered by surging mortgage repayments, a central banker who earns over a million dollars a year and who has enjoyed cut-price home loans courtesy of his role, telling a roomful of investment bankers brought together by a scandal-ridden multinational that ordinary families should just cut spending or work a little harder, is remarkably tone-deaf.
And all the more so given it was just hours after Lowe’s own statement specifically said labour market conditions were easing, raising the question of where, exactly, those extra hours we’re all supposed to work were going to come from.
It was about as tone-deaf as Lowe lecturing renters last week to find more flatmates or move back in with the parents if they didn’t like paying such high rents. Not since Joe Hockey told young people to just go get a better job if they wanted to buy a house has a senior economic policymaker appeared so out of touch. At least as an elected politician, Hockey faced the wrath of voters and his colleagues. Lowe faces none of that.
Needless to say, this doesn’t help rehabilitate Lowe’s reputation as the man who assured Australians interest rates wouldn’t go up until 2024. As it turns out, what he meant to say was that interest rates wouldn’t stop going up until 2024… regardless of the fact that demand from ordinary households is playing only a limited role in inflation compared to factors like profit gouging by corporations.
There’s also the strange inconsistency of “surprise” interest rate rises in May and June, after the much-touted “pause” in April, even as the economy continued as it had earlier this year, wobbling slowly to breakeven, supported by a strong jobs market and an export performance that still defies the odds, with inflation not going away. That pause now looks a wrong call by the RBA’s own lights — and it once again gave false hope.
Lowe’s loss of credibility — and his loss of regard in the eyes of senior figures like Gittins — is a serious problem for the RBA and the economy as a whole. We’re in the midst of one of the most fraught periods of monetary policy decision-making since the RBA increased interest rates while unemployment was still above 9% under Keating. The reputation and credibility of the bank have taken a battering courtesy of its own mistakes. The last thing it needs now is the perception that its governor is an out-of-touch buffoon welded to the side of big business.
But that’s exactly what Lowe has become, and he’s dragged the bank down with him in terms of credibility with the community.
One of the lingering problems in the Australian polity, as elsewhere in the West, is the perception that “the system” — politics and the economy — is operated in favour of powerful interests rather than communities. It breeds alienation, conspiracy theories and extremism — and the populists who exploit that. Lowe seems hellbent on fostering exactly that kind of corrosive sentiment. The end of his term in September can’t come soon enough.
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