Greens may chafe at this comparison, but their ultimatum for an RBA rate cut is Trumpist | Interest Rates

The Greens may chafe at the comparison, but their demand that Finance Minister Jim Chalmers order the Reserve Bank to cut rates now is Trumpist.

Greens economic spokesman Nick McKim says his party will not support the Albanian government’s RBA reforms unless or until interest rates fall. Given that central bank governor Michele Bullock has repeatedly said a cut in the cash rate is unlikely in the near term, Chalmers should use his existing powers to bring this about.

For the many households and businesses struggling with the fastest rise in debt repayments in three decades after 13 rate hikes by the RBA, an intervention may sound attractive.

Part of the reasoning is that mortgage holders are “now getting beaten up”, McKim said, echoing Chalmers’ own words. The powers of intervention already lie with the Treasurer and splitting the cash rate would end “the appearance of independence of the RBA”.

True, no government agency is completely remote. The treasurer can appoint the governor, and the government-appointed finance minister sits on the board. And if Chalmers gets his way and sets up an independent monetary policy board – as recommended in the RBA’s year-long review – he can put their names on the accompanying press release.

But however politically attractive such a move might be, it would undo three decades of economic change. Some might welcome a return to a government-determined exchange rate and a central bank controlled at the whim of the current government.

There is certainly a populist appeal, otherwise former US President Donald Trump would not be trumpeting ideas in the US. In April, the Wall Street Journal reported that some of Trump’s advisers were considering firing US Federal Reserve Chairman Jerome Powell if he wins office in November.

A “small group” of allies were also hatching plans to give Trump a role in setting interest rates in the world’s main debt market, the newspaper reported.

Financial markets brushed aside such a threat to the world’s largest debt brand from a self-described billionaire businessman who claimed to know more than Fed economists and officials. On the other hand, such concerns could flare up again after Republican anger over last week’s Fed rate cut — the first in four years — which Trump himself called “a political move.”

The size of the US market is astronomical, with more than $US25 trillion ($A37 trillion) in US Treasuries alone turning over last year, with a whopping $US1 trillion in daily trading. How a highly traded market – one that influences global borrowing costs – would react to a Trump intervention is difficult to say, but “carnage”, “catastrophic” and similar descriptions would likely be in the headlines that day.

For Australia, an open economy dependent on international trade and financial flows with a floating currency, an intervention by Chalmers to ignore the RBA would likely be equally disastrous.

Gareth Aird, head of Australian economics at the CBA, the country’s largest bank, said the impact would be “enormous” and long-lasting.

Australia has enjoyed relative price stability for the past three decades. An intervention would effectively “make the RBA board redundant”, leaving investors – and the public – with little idea of ​​where future interest rates would be headed, Aird said.

The cost to Australia would be that investors at home and abroad would demand a higher price – in interest rates – to lend money to Australian governments and businesses. Any rate cuts, in other words, would be temporary and would come at the expense of Australians who pay a risk premium, just like Turkey or other countries where central banks have been overruled.

Ironically, the RBA reforms the Greens would be prepared to implement – ​​should Chalmers heed their pressure – include setting up a more expert panel within the RBA to set interest rates.

After such an intervention you wonder: what is the point of bringing in even more talent?