The impact of the United States Federal Reserve’s decision to cut interest rates reverberated in the Senate, with the opposition pressing for an explanation from the government for its approach to inflation.
Liberal Party Senator Jane Hume asked Finance Minister Katy Gallagher to explain why Australia had not acted to effectively manage inflation, which has caused interest rates to remain at elevated levels.
Hume pointed out that Australia’s core inflation remains higher than that of comparable economies, including the United States, the UK, and Canada. She added that these countries and other comparable nations have already begun their interest rate easing cycles after bringing inflation down.
“Why is it that after three Albanese Labor government budgets, Australians are saddled with an entrenched per capita recession, negative productivity, sticky inflation, and interest rates staying higher for longer?” Hume asked.
In response, Gallagher countered that inflation had peaked in the quarter when the Labor government first came to power. She also mentioned that Australia’s interest rates had halved from their peak in 2022.
“And our rates are still lower than the U.S., even after today’s rate cut,” Gallagher added.
On Sept. 18, the U.S. Federal Reserve announced its decision to cut interest rates by half a percentage point. Following a two-day meeting in Washington, the Federal Open Market Committee decided to lower its key lending rate to between 4.75 and 5 percent.
In addition to the United States, around ten key central banks, including those in Canada, the UK, the EU, and New Zealand, have been reducing their official interest rates since last year.
Gallagher said understanding the full picture is essential when using international comparisons to make political points. She highlighted that inflation in the United States peaked higher and later than in Australia.
“Interest rates were higher in the U.S. than they ever reached here. Currently, they’re at 4.3 percent, but in the U.S., they were over 5 percent. So when making these international comparisons, let’s actually be upfront and honest.”
On Sept. 5, Reserve Bank of Australia (RBA) Governor Michele Bullock noted that while inflation had decreased, it was still “premature to be thinking about rate cuts.” She said monetary policy would need to remain “sufficiently restrictive” until the RBA was confident that inflation was on a sustainable path towards its target range.
Hume also raised concerns about newly released Australian Bureau of Statistics (ABS) data, which indicated that real disposable income in Australia had fallen by 8.7 percent since the election of the Albanese Labor government.
Household Challenges
Gallagher acknowledged that households had been facing challenges due to inflation but added that this was true for Australia and countries worldwide.However, opposition questioned when Australian households would see their disposable incomes recover.
In response, Gallagher defended the government’s support measures, arguing that households were receiving more assistance than they would have under the Coalition’s economic plans.
“Our economic plan is about not adding to the inflation challenge, helping households through this, creating jobs, and getting wages moving again. Your economic plan is to cut $315 billion from Commonwealth spending at a time when our economy is hardly growing,” Gallagher said.
Citing ABS data, she added that the Albanese Labor government’s economic strategy had created nearly one million jobs.
“This is in addition to record-high workforce participation and the gender pay gap being reduced to a record low. Inflation in Australia is moderating,” Gallagher concluded.
