Will Australians benefit from an interest rate cut in 2025?

The US Federal Reserve continued its interest rate cuts this week, and Australians are wondering when they might start to see the same easing of pressures on the cost of living and mortgage repayments.

On Thursday, the Federal Reserve cut its interest rate by 0.25 percent, from 4.5 percent to 4.25 percent.

The United States began cutting interest rates in September, with a 0.5 percent cut, followed by another 0.25 percent cut in November.

In a statement, the Federal Open Market Committee, which makes key decisions on interest rates in the United States, said economic activity had increased while unemployment remained low.

However, the committee also said it would “continue to monitor the implications of incoming information for the economic outlook”, signaling a cautious path towards further easing of interest rates in 2025.

At the same time, Australians are also hoping for interest rate cuts to ease cost of living pressures.

Earlier in December, the after its last board meeting of the year. The rate has not changed since November last year.

Independent think tank The Australia Institute criticized the December decision, saying a reduction was “long overdue”.

The institute’s chief economist, Greg Jericho, called on the board to return earlier than expected in January and cut the interest rate, which has remained stable for more than a year.

“Economic management is a full-time job and yet the RBA is taking two months of summer vacation,” he said.

“(Reserve Bank Governor) Michele Bullock and (Treasurer) Jim Chalmers constantly tell us they are ‘tweaking’ the economy. That can’t be done with the RBA board in cricket. ”

Expectations “jump everywhere”

While there had been initial hopes for an interest rate cut in February, a surprise drop in Australia’s unemployment rate could have made this less likely.

The unemployment rate rose from 4.1 per cent to 3.9 per cent in November, the Australian Bureau of Statistics (ABS) reported last week, defying expectations of a 0.1 percentage point rise.

About 35,600 jobs were added to the economy, well above market forecasts of a gain of 25,000 jobs.

“In November, we saw a higher than usual number of people who found jobs while unemployed and waiting to start working in October,” David Taylor, head of labor statistics, said Thursday of ABS.

“This has contributed to rising employment and falling unemployment.”

RBA Governor Michele Bullock cited continued strength in the jobs market as one reason Australia has lagged behind peer countries in beginning its monetary easing cycle.

Dr Gareth Bryant, a political economist from the University of Sydney, told SBS News that central banks around the world, like the RBA, have become increasingly reliant on data in the face of more post-COVID unpredictability.

Reserve Bank of Australia Governor Michele Bullock said continued strength in the labor market was one of the reasons Australia was lagging behind peer countries in reducing job losses. interest rate. Source: PAA / Steven Saphore

While unemployment figures appeared to indicate a reduced likelihood of a rate cut in February, the ABS had also released relatively weak gross domestic product (GDP) figures a few weeks earlier.

“Over the last couple of months, we’ve had data points that were going in different directions,” Bryant said.

“There’s not a lot of certainty about the economic situation we find ourselves in, so expectations are very variable. When you put it all together, I think the chances of an interest rate cut in February are about 50-50.”

Although Bryant said an interest rate cut by May was more likely, the decision could depend heavily on upcoming inflation or unemployment numbers.

What about the new RBA board structure?

The RBA’s operations have recently undergone significant upheaval, : a banking governance council and a monetary policy council which will hold its rate-setting powers.

The overhaul comes after an independent review of the central bank’s operations criticized the current board’s decision-making process and its ability to hold the governor to account.

Earlier this week, Treasurer Jim Chalmers announced the appointment of Australian National University professor Renee Fry-McKibbin and former Bendigo and Adelaide Bank boss Marnie Baker to the monetary policy council, alongside four existing members.

Although Bryant said the new expertise of board members would bring the RBA closer to that of comparable countries such as the United States and European countries, the change is unlikely to have a major impact on board decisions. rate reduction in the coming months.

Will this happen in 2025?

Bryant said Australians can expect interest rates to be reduced next year, based on current economic conditions and the trajectory of inflation.

However, he warned that unseen economic shocks or events could influence this decision.

“The key question is whether they will be able to do this in a way that avoids the accumulation of potential economic risks in terms of the impacts of keeping interest rates too high on economic growth and the work,” he said.

“That’s the big risk they’re managing right now and the timing of interest rate cuts will be really important.”

When will the RBA meet?

The RBA board will meet eight times next year, with the first day of each meeting falling on a Monday.

February 17-18
March 31-April 1
May 19-20
July 7-8
August 11-12
September 29-30
November 3-4
December 8-9

The RBA said the results of each meeting would be announced at 2:30 p.m. on the second day of the Board meeting and the governor would hold a press conference at 3:30 p.m.

With additional reporting from the Australian Associated Press.