pick one you care about, not both

Which may help explain, I think, the remarkable resilience that Australians have – on the whole – shown in the face of the pandemic.

Not so long ago – remember – we were confined within three miles of our homes, subject to nightly curfews and heavy fines for breaking pandemic lockdown rules.

Australians are worried about the cost of living and rising prices. Credit:Glenn Hunt

How fast we are moving. In the space of a year, we have gone from worrying about the impending death of elderly loved ones and the possibility of skyrocketing unemployment to worrying about the specter of rising prices .

There are dire warnings, both globally and domestically, that rising interest rates are about to plunge us back into recession.

In the US, JP Morgan CEO Jamie Dimon urges investors to ‘prepare’ for an economic ‘hurricane’ as the US Federal Reserve flirts with tipping the world’s largest economy into recession to halt high inflation.

Of course, some people will always be worried that the sky is about to fall. Journalists are among them. Indeed, it is our professional responsibility to scan the horizon for corruption, crime and any threats requiring democratic attention. And it is through this work that threats are often brought to attention and averted.

Jamie Dimon says there's an economic hurricane on the horizon.

Jamie Dimon says there’s an economic hurricane on the horizon.Credit:Bloomberg

But the sky hasn’t fallen on the economy during the pandemic, as feared, precisely because policymakers have gone to great lengths to prevent it from happening.

And guess what? The sky is unlikely to fall on us now that inflation is accelerating. Why? Because policy makers will do everything possible to prevent this from happening.

And in any case, some interest rate hikes – including the almost certain rise on Tuesday – are not harbingers of bad luck.

They are in fact a positive sign of the homeostasis at work in the economy. Freed from our homes and in the midst of low unemployment, we can only have inflation because companies feel more confident to pass on higher prices to us.

RBA Governor Philip Lowe.

RBA Governor Philip Lowe.Credit:Louie Douvis

Guys, this is good news.

Could the Reserve Bank accidentally tip us into recession by raising interest rates too quickly? Sure. It’s always a risk.

But there is little credible reason to suspect that those same policymakers who have gone to such lengths to protect job growth during the pandemic will now switch to a short-term obsession with controlling prices regardless of the results in matter of employment.


Our central bank has – by explicit design – a multi-faceted mandate to both ensure price stability in the economy and promote full employment and the general welfare of the Australian people.

It is true that this mandate has recently been translated into a commitment to maintain consumer price inflation between 2 and 3% over time. But price stability is not the end point in itself, but simply an important means to achieving a well-functioning and fully employing society.

It is true that financial markets are anticipating an aggressive series of interest rate hikes over the next two years which, if inflicted, would likely tip us into recession.

But there is little chance that this will actually happen.


Mortgage creditors fear both rate hikes and a recession should do itself a favor and pick one to focus on. You can worry about rate hikes, or you can worry about a recession, but it doesn’t make sense to worry about both at the same time. Why? Because rest assured, if we hit a recession, the Reserve Bank will not raise rates yet.

In the meantime, it makes sense for households to focus their attention on what they can control: their reaction to rate hikes. There is no doubt that indebted households must now begin to adjust their spending behavior as interest rates recover to more normal levels in the months ahead. There will be less wiggle room than there has been for dining out, holidays, and overpaying for essential services by not chasing the best deals.

Our economic set point is returning to more normal levels. And this is a good thing. And history and psychology suggest we’ll adjust pretty quickly too. This is what we do.