Rates and inflation in ‘safe hands’ with new RBA governor Michele Bullock

  • Published July 14, 2023

The Australian, 14 July 2023

Michele Bullock will lead a historic makeover of the Reserve Bank as the central bank’s first female governor, while facing a push by trade union leaders to prioritise jobs over fighting inflation.
After cabinet met on Friday, Anthony Albanese announced RBA deputy governor Ms Bullock would replace Philip Lowe in September, to drive the most far-reaching revamp to the independent economic body in the modern era of flexible inflation targeting.

Ms Bullock comes to the role as the RBA is set to be granted ­greater independence and works with the government to fashion new ground rules covering inflation targets, interest-rate settings and accountability in the wake of an exhaustive review by a three person panel that was published in April. The Prime Minister said Ms Bullock “is eminently qualified to lead this national institution”, while also praising Dr Lowe’s economic stewardship during the pandemic.

“Michele’s will be an important job at an important time with the challenges that we face globally,” Mr Albanese said, citing the economic consequences “of Russia’s ­illegal and immoral invasion of Ukraine”.

Ms Bullock, who has worked at the central bank since 1985 and is a current board member, was widely viewed as the most likely successor to Dr Lowe in the event his seven-year term was not extended.

She was chosen ahead of other mooted candidates including Treasury secretary Steven Kennedy and federal Finance Department chief Jenny Wilkinson.

Dr Lowe congratulated his colleague on her appointment and said the central bank “is in very good hands as it deals with the current inflation challenge and implementing the recommendations of the Review of the RBA”.

But Ms Bullock has been a target of union outrage after stating last month that unemployment, currently 3.6 per cent, is too low and “will have to rise” to bring inflation back to the RBA’s 2 to 3 per cent mandate within a couple of years. Headline inflation was 7 per cent in the March quarter and 5.6 per cent in the year to May.

Ms Bullock’s appointment was warmly welcomed by the federal opposition, business groups and the economics profession.

Westpac chief economist Bill Evans said in the 15 months since she became deputy governor, Ms Bullock had “established herself as perceptive, confident and prepared to address the key issues”.

Mr Evans said her speech last month explaining the 4.5 per cent rate of full employment “points to a convincing determination to achieve the inflation target by mid-2025” and shows the RBAs current path for interest rates would not change in the medium term.

On Friday, the ACTU and major Left-faction unions, the CFMEU and the Electrical Trades Union, called for full employment to be redefined from the RBA’s current technical estimate of around 4.5 per cent, while the powerful Australian Workers Union said “involuntary unemployment” should be obliterated.

Setting up a clash with the ­Albanese government, the AWU and Health Services Union also called for fundamental changes to the RBA’s operations, with the four unions representing a considerable voting bloc on the floor of Labor’s national conference next month.

Health Services Union NSW secretary Gerard Hayes told The Weekend Australian he had “no confidence” in Ms Bullock, and was disappointed Labor appointed a person he described as “out of touch” with the concerns of working Australians.

Mr Hayes said Ms Bullock “needs to make a public apology to the people of Australia”, over her comment in Newcastle last month.

“If a person is so out of touch … and accepts more people won’t be able to feed themselves or their families … we’ve got a major problem here,” he said.

But after an exhaustive selection process, Jim Chalmers said Ms Bullock “is the person best-placed to take the Reserve Bank into the future”.

“Her appointment best combines experience and expertise with a fresh leadership perspective at the Reserve Bank as well,” the Treasurer said.

Dr Chalmers said the comments Ms Bullock made in the speech “just reflected what the Treasury expects and what Reserve Bank expects, that as inflation moderates we are both expecting to see a tick up in the unemployment rate”.

“I think that’s a relatively non-controversial point to make, and I said that at the time as well. And when it comes to full employment, one of the key outcomes or recommendations out of this RBA review is that the bank obviously care about price stability, but also cares about full employment. They’ve actually got two objectives.”

Dr Chalmers revealed the current governor, who has presided over 12 rises in official interest rates since May last year and had serially stated there would be no change in the 0.1 per cent cash rate target until 2024, was also on the short-list of candidates.

The Treasurer also confirmed that the government has been working on a new statement on the conduct of monetary policy, the first refresh since 2016, with the existing RBA leadership, and would be finalised in coming months. “But deliberately and for obvious reasons we thought it best to conclude it after we make this appointment, and the same for the legislative part of it,” he said, where Labor is seeking bipartisan support for changes to the Reserve Bank Act.

On Friday, AWU secretary Paul Farrow said “the RBA’s goals should be updated to strike a better balance between its goals of price stability and full employment, so full employment is understood as zero involuntary unemployment”.

“We also think the government should establish a Macroeconomic Coordination Committee, comprised of the Treasurer, the Minister for Finance, the RBA Governor and Deputy Governor, the Chair of APRA, and the Secretaries of the Department of Treasury and the Department of Finance” Mr Farrow said.

“The Committee could meet to discuss and co-ordinate fiscal, monetary and macroprudential policy to cooperatively pursue employment and inflation targets,

Dr Chalmers, a member of the AWU, in April installed two former ACTU representatives on the bank’s board, and the government has flagged making employment goals a larger part of the RBA’s mandate.

ACTU national secretary Sally McManus said there needed to be a “reset” of the unemployment target and push for wage restraint.

Ms McManus said the RBA had been keeping unemployment “artificially high” and that this needed to immediately change.

CFMEU national secretary Zach Smith said any RBA governor would have “a hard time looking out for working people” under current dominated trends, which included the definition of full employment at 4.5 per cent.

“The outdated economic orthodoxies that push for wage restraint while corporate profits run wild must change,” he said.