Daily Commentary BY THE CURVE TEAM –

RBA in Line with the Fed

18th of February, 2021

The Fed’s Meeting Minutes for their end of January Board meeting is very similar to the RBA’s.

Lower for longer continues to be the mantra for central banks. The Fed re-iterated in their latest minutes that they don’t expect to taper their monetary support for some time.

This is despite the growing expectations of inflation and the back end of government yield curves rising. If markets see inflation and an exuberant recovery as increasingly likely, then central bank’s QE programmes will be working against a strong force.

The Fed has also been more explicit in its guidance that it will let inflation run hot. They have changed their target to an average over time, which will only increase the inflation expectations.

In parliament two weeks ago, the RBA were questioned about how they would respond to growing inflation, and whether they would let it run hot similar to what the US have indicated they would do. Their response was much more ambiguous.

The RBA have indicated they would use actual not forecast inflation as their guide, which means inflation is more likely to run hotter than usual before rates are increased. However, it seems it won’t be to the same extent as the US.

Today employment numbers for January are released. Another growth in jobs is expected, which will continue the very strong recovery in employment.

Josh Stewart

Associate - Money Markets