Fireside Chat
Fireside Chat at the Money Marketeers of New York University
Andrew Hauser
Deputy Governor
Money Marketeers of New York University
14 April 2026
(
13 April 2026, 6.15 pm EDT
)
–
New York
Host
Before we get to the heart of the discussion, we’ve heard some questions about the Australian
economy, some deeper questions on financial markets, but we’d like to start, I wonder if you
could set the scene for us a little bit. Talk to us about where Australia’s economy is fitting
into the global picture right now. Give us your lay of the land.
Andrew Hauser
Well, let me start with a question because I’ve got a bet on with Morgan about this. So I want
to see a show of hands. How many people in this room have been to Australia? That’s pretty good,
50 per cent. Australia is the smallest economy in the G20 by population, and it’s
also by some measures the most distant. So the capital of Western Australia, Perth, which some of you
may know is part of the mining sector, is by most measures the most remote city in the world.
It’s more than 2,000 kilometres from the next city, defined as a place of more than 100,000, you
know, participants. So it’s small and distant, but it’s the second richest country in the
G20 when you look at the income per head or the wealth per head. And why has it, how has it
achieved that sort of, you know, zero to hero type of escalation? It’s by being incredibly
effective at exporting its natural assets. It’s a huge country actually and, you know, a Brit
has to realise this. It takes 7 hours or so to fly across the country. It’s in the same
sort of scale landmass as Canada, Brazil, China, the US. It has huge natural endowments. Again, I was
also testing all of this on the way up. By some measures, there are 70 to 80 of the
118 elements of the periodic table have commercially exploitable deposits in Australia, probably
the largest in the world. Those endowments span the old industries, So we’re the largest
exporter of iron ore, mostly to China. We’re the largest exporter of coal. And we’re the
first or second largest exporter of liquid natural gas. But it’s also the new industries as
well. The critical minerals, rare earths, are spread across Australia. So it’s the old,
it’s the new. We have probably the largest solar capacity of any country. Sorry to go on about
these sorts of boring statistical questions, but I could ask the room again, what proportion of the
Australian landmass would have to be covered in solar panels to provide the world’s energy? And
most people say, I don’t know, 20 per cent or 50 per cent. The answer is
5 per cent or less. Now that’s still a pretty daunting prospect. So it’s not just
the old world, it’s not just the new world, it’s also for eternity of course. Because most
recently our second largest by value export is gold. So the geographical position in Asia has proved
to be to the advantage of Australia.
It’s a diverse economy. More than a third of its people were born overseas. That’s second in
the G20 only to Saudi Arabia, which obviously has a very different kind of composition. And over
80 per cent of its flora and fauna are unique to Australia. Many of them want to kill you,
by the way, which you’ll find out if you ever go. Stable institutions. I hope this doesn’t
sound like a sales pitch. If it does, I mean it to be. It was the first country to grant women the
vote in the 19th, early 20th century, and one of the first countries to have a secret ballot. It has
world-leading universities. Its education is actually in its top 5 exports. And it’s the
number one dream destination for global talent according to BCG’s survey. I don’t know if
that’s true or not, but that’s what they said. So look, Australia is a poster child for the
benefits of globalisation, and it has gotten rich on the back of it. Obviously, that also puts us at
the front line as those rules of the game, as it were, are changing as they obviously are changing
now. We import pretty much all of our manufactures. We have one of the largest deficits with the
United States, which is pretty extraordinary given the size of our economy in dollar terms.
We’re at the front line of the US-China relationship. We rely on the US for our strategic
oversight, but we rely on China for our economy. I sometimes say we, you know, adopted the Carney
doctrine before Carney, because Australia has managed that relationship with all its tensions very
effectively now for many decades. And Heather won’t let me go without saying that we also have
the fourth largest, soon to be the second largest pool of pension savings in the world. I did a lot
of this research myself, so I’m a very happy export to Australia. But I think, you know, that
sort of puts I think it explains perhaps why, you know, Australia, a small economy in population
terms, in GDP terms, is I think an enormously interesting case study of some of the global trends
that are now occurring, both the benefits and some of the challenges.
Host
We’ll talk about global trends right now. Australia has been at the forefront of a lot of global
trends recently. One of them is that it was the first country to start raising interest rates.
Andrew Hauser
Yes.
Host
In this we call it mini cycle, at least in the last number of months, as suddenly market interest
rates have pivoted from pricing interest rate cuts in most countries to pricing interest rate hikes
in a lot of countries. So being at the head of that cycle, as the economy of Australia recovers,
inflation seems like it’s picked up. What’s been the thinking behind the RBA’s recent
monetary policy pivot? Talk to us about that.
Andrew Hauser
So if I go back a little bit, we tried to adopt a rather different monetary policy strategy coming
out of COVID. We had the spike in inflation, as most countries did. We had to raise interest rates
quite sharply. We didn’t raise them as sharply as other countries because there was a view at
the time, obviously it wasn’t there, but there was a view at the time that it made sense to try
and retain the employment benefits, the unemployment benefits if you like, of the COVID period. And
what that meant was not only did we not raise rates as far, we were more cautious in cutting them. We
began cutting rates quite cautiously in 2025, and it looked like we were coming for a pretty soft
landing. Growth, as you say, picked up to about 2.5 per cent at the end of ‘25.
Unemployment remained close to historic lows, and inflation was expected to come back towards the
middle of the 2-3 per cent target.
Three things changed, however, as we got into the second half of last year. The first was the world
economy. Now, of course, everybody thought that we were going to hell in a handbasket in what you
call the spring, and I still call the spring, but I have to remember it’s called the autumn in
the southern hemisphere, in other words, in April of ‘25. And many in the markets have assumed
that Australia was in the firing line, frankly, because of our relationship, economic relationship
with China. That proved, of course, entirely wrong, and the global economy roared forward in
‘25. And Asia in particular, and I spent several meetings with Asian central bank governments
who’ve been really astonished at the pace of the export growth, in particular because of the
tech cycle. So that was one strike against the view that the economy would reach this soft landing in
‘25. The second was, and I will come back to this later, the stance of our policy measured by
our short-term interest rate alone looked pretty restrictive. And we had a set of banks domestically
that were very well capitalised, keen to lend, and obviously credit spreads were at a historic low.
So broadly, you know, more broadly defined, our financial conditions were easier than the short rate
alone implied. Thirdly, our output gap closed much more quickly than we expected. Private sector
demand picked up quite strongly, but also, this is a big point about the Australian experience, and I
think pretty much every economy outside the US, our supply capacity is critically strained. Our
estimate is that the supply capacity of the Australian economy at the moment probably can only grow
at about 2 per cent. All of those things meant that by the third or fourth quarter of last
year, inflation began to pick up, as you say, and is now around 3.5 per cent on core and
nearer 4 on headline, which is too high. And so we had to tighten policy in response. As you
say, whether this was a made-in-Australia issue or whether in fact we caught the tide of global
inflationary pressures beforehand, I don’t know. I think the second may be truer than the first.
Host
I mean, you’re making a very subtle point there about the global aspect, and I would want to
actually highlight and maybe push a little bit more on one of the things you said about the global
tech cycle, which is not something that one hears from a lot of central bankers in Europe or the
United States. It seems like a really subtle point. Talk to us maybe like a sentence.
Andrew Hauser
Yeah, it was the data centres, right? This is the servers and the racks and the concrete and the
construction, all of those things that go into making, you know, the hard investment of the tech
cycle a reality. Sometimes we think of AI as being basically disembodied, but as you know, and
I’m sure many in the room know, it implies a level of physical investment that is massively
higher than the internet. And Asia, the Asian economies, obviously we know about Taiwan and
microprocessors, but the Asian economies produce that stuff. It goes into the data centres and
they’ve done very well out of it.
Host
They’ve painted a very interesting picture. And so we’re looking at this world where
there’s suddenly some strong growth from AI, demand for physical resources, and then we
encounter an oil shock. Boom. So talk to us a little bit about that. Talk to us about it as a central
banker, what from first principles you think it means, and talk about it in the Australian context as
well.
Andrew Hauser
Well this is a big issue, and it’s top of mind for Australia, to be honest. We’ve been
having a few chats here in the last couple of days, and I’ve been struck that it’s AI
first, Iran second or third. I think if you were in Australia right now, Iran would be number one,
and it’s very much top of mind for policymakers. The sort of framework I think about in terms of
this – and I stole this from Frank Smets, actually, he should get the credit – but
there’s five components you want to think about: the size and duration of the oil price shock,
the energy intensity of consumption, production and trade, the starting economic conditions, the
colinear shocks that might be happening at the same time, and other policy development. And if you
take those in turn, the size and duration of the shock is a global thing. Well, it’s not quite a
global thing, because there are interesting sub stories about Brent versus North Sea oil, all of
those local things, and there’s a particular issue about supply conditions in Australia, we have
quite low stocks, 30 days or thereabouts which is lower than the IEA number, and we take most of
our oil from Asia, who in turn get theirs from the Middle East. We don’t buy much from the US at
all at the moment, and the Government is working hard to secure those supplies. The energy intensity
has some good news and bad news. We are a net energy exporter: that coal, liquid natural gas, is
quite a good earner at the moment, but we are almost wholly reliant on imports for oil and we are the
highest user of diesel per capita in the world. So this is a big real income shock for Australia,
even if national income and the fiscal coffers may benefit from that net export position. The
starting economic conditions, we already talked about: relatively tight labour and product markets,
inflation is above target, and inflation expectations in the short term are picking up. The colinear
shocks, by which I mean the tightening of financial conditions: actually, we think we’ve seen
less of that, because we’ve already been seeing this tightening. And fiscal policy has already
responded a little in Australia and may respond more. So I think, look, if you put that all together,
it’s obvious that inflation is going up in the short term, and people are very conscious of
that. We can see that in consumer surveys. There’s not much monetary policy can do about that,
other than prevent it from getting into long term inflation expectations. The big question for us is
what it’s going to do to activity, and therefore what that’s going to do to inflation over
the medium term. Those are the numbers we’re crunching through at the moment.
Host
Just to dig a little bit further there. So short term shock, short term income shock, strong starting
point, also, though, mitigating terms of trade benefit for Australia. As a central banker, do you
care more about monitoring inflation expectations at a time like this? Are you thinking more six
months ahead or nine months ahead?
Andrew Hauser
Well, I think the reality is you have to care about both actually, and you don’t want inflation
expectations in the medium to long term picking up. That, of course, is a central banker’s
nightmare and we’re very alert to that. Long term inflation expectations have not picked up, if
you look at markets. But of course, that’s partly endogenous of expectations about policy. But
we do need to take account of activity. We do need to take account of the possibility that that will
close the output gap for ourselves. Of course, the trickiness there is we know it affects demand, but
we probably think it affects supply as well. So our economists are being kept very, very busy trying
to work out that trade off. And, I mean, you know this, because you guys trade in fixed income
markets, but I mean it was very interesting to see that huge ramp up in short rates, particularly UK,
eurozone, for the US story too after the invasion. Some of those numbers, you know, options, I think
had five interest rate rises for the eurozone at one time for example, pretty extreme, and the
markets have normalised a little bit so far. So I think easy to see that upside inflation pressure,
more important for us now to think through what that medium term impact might be. It might still be
on the upside, in which case we’re going to have to respond. But we do also need to take account
of the possibility that if activity slows – and, you know, for example, consumer confidence
indices in Australia have fallen very, very sharply; I saw the University of Michigan series have
done so in the US as well, in fact, lower than Covid, I think, if I’m right, the Michigan survey
is the lowest in its 70 year history. I don’t think those surveys necessarily tell you a
lot about what consumption is going to do. But if they’re right, we have a big income shock
coming our way. We’re going to have to think about that in that overall game. So it is a central
banker’s nightmare. You know, the stagflationary shock: inflation up, activity down. Judging the
balance between those two is, I guess, how we earn our money.
Host
And it’s a stagflationary shock that’s coming at a time when the world has seen a lot of
fiscal expansion over the preceding five, six years. So that was also part of the context. You spoke
about that at the beginning of your discussion here, how do you think about making monetary policy
amidst an environment of large global and domestic fiscal expansion?
Andrew Hauser
So this is a question, as you know, Doug that central bankers tiptoe like a minefield, and in
particular in Australia, where this is a very live debate. So let me just say a couple of things. My
first thing, perhaps a slight joke, is that I’m never quite sure what people are saying when
they ask this. Are they saying rates are too high because fiscal policy is over-expanding the
economy, or are they saying that rates are too low because we’re getting sat on by evil fiscal
dominance? It can’t be both. And some people try and argue it’s both. I think the
differentiation I draw for central bankers is whether your debt stock is sustainable or not. Where
your debt stock is sustainable – and Australia lands foursquare in this: general government net
debt, GDP, in the bottom quartile of the G20 – I hold very clearly to the separation principle,
which is, it’s not for unelected bureaucrats like me, a foreigner, to dictate to a democratic
government what they do to deliver their democratic mandate. They know our reaction function, and
they know that we have been asked – by them, in fact – to hit the inflation target, and
we will do so. And that is the way that I think monetary and fiscal policy should interact with
stable debt dynamics. It’s interesting, of course, that that’s not true necessarily of
every G20 country. I was rather struck to find, looking some data for some of this, that a
quarter of the G20 now has general government debt over GDP, and another quarter near that
number. I think now that much-discredited number of 90 per cent that a couple of
researchers came up with a few years ago because someone found a problem in their spreadsheet,
there’s numbers that are north of that. I’m not saying they necessarily have unstable debt
stocks, but you know, you mentioned at the beginning, you see what happened in the UK from a
financial stability perspective, when the government pushes too far. Fiscal dominance could be an
issue in some cases, although I don’t think it’s reared its ugly head yet. And there’s
this whole interesting debate which I know Kevin Warsh has raised, and others, about, well, do
central bankers bear some of the blame here, because they pushed interest rates to zero, expanded
balance sheets to buy debt during periods, and that they somehow confused the incentives of fiscal
policy makers. I don’t think that’s true either, by the way, but I do think we need to be
conscious of the interaction between our issues and debt where you have an unstable debt stock. But
in Australia’s case, I’m going to plead the Fifth if that’s the right expression.
Host
Exactly the thing to say in the United States. And to follow up, you made the subtle point about the
squeeze in short term interest rates and you had to [hike rates]. They’re priced into a variety
of different countries around the shock from the war. Do you ascribe the kind of heightened
volatility and heightened pricing and changes and pivots in the market pricing paths of central bank
interest rate policy, more to just shock, just the market liquidity, to an underlying inflation
environment, to this fiscal condition, sort of unpack that for us.
Andrew Hauser
I think it’s this thing that we talked about a minute ago. You can very easily see the short
term pickup in inflation. You can see that actually, it’s interesting. I said, you know, we in
Australia come into this with relatively challenging initial conditions. But actually, of course, the
US core PCE has been roughly one percentage point above the 2 per cent target as well,
a point which I found out the other day. So we’re not unique, actually, in going into this situation with inflation,
not uncomfortably high, but the wrong side of target. So I think you know people in the market
clearly felt geez, here comes a shock with the wrong sign on it, and they also had been working
through this trade off that I described a minute ago as well. As I say, we all we understand
it’s important that central bankers need to help the market and broader public understand how
the shock will play through with the system. But to be blunt, we have to work that out first
ourselves.
Host
That makes a lot of sense. And so let’s talk about currency then. The other big thing
that’s been moving around. The USD, the global reserve currency, has had a number of stress
moments in the last five, six years, many of them benefiting it: the Covid shock, the Ukraine war,
now this. As the so-called poster child small open market economy – I don’t really know
that there’s a poster child for anything, but that’s what the so many of the textbooks say
– Australia is a country for which currency can matter more, it’s broader financial
conditions. So talk to me, both as an observer of financial conditions around the world, what you
think about these shocks and how they play out in Australia.
Andrew Hauser
So I had to look up the phrase ‘opposite twins’. But apparently it’s a thing, and the
US dollar and the Australian dollar are basically opposite twins. People run towards the
US dollar – usually, not always, didn’t do so last year, when there’s a problem
– and when risk is off, they run towards the Aussie dollar and so you do tend to find them
moving in almost completely opposite lock step. That sort of risk-on characteristic of the Aussie
dollar has sometimes been a challenge Australia over time, particularly during the mining boom of the
early 2000s as a source of volatility. But I have said, I’m sorry to say, perhaps in terms of
the headline here, I mean, you know, it’s been more often than not, a buffer. It’s moved
roughly in line with interest rate differentials and so there’s not been a lot to see here in
terms of the macro role of the Australian dollar in our overall assessment. I mentioned the super
funds, and I keep doing so, but as this outflow of savings has increased, it has substantially
improved Australia’s net international investment position, which had been relatively weak and
is now much closer to balance as a result of that outflow. And that will continue to improve. If I
mentioned NIIP, pivoting for the US dollar, of course, you roughly see the reverse, where, for
many years, decades, centuries maybe, the US was able to benefit from the privilege of basically
needing to run deficits but funding them in a way that was a net earner. That obviously has ceased in
the most recent period. And, you know, I hesitate to make any comment about the US dollar in the
US but that is a live debate, as you well know in markets as to whether the US dollar is losing
some of its sheen. I think the forecasts of the death of the dollar are probably a little premature,
to be frank. I spoke about this a few weeks ago in the Booth panel. You can go through the number
declining share of reserves, and you know the reduced premium that the US is able to charge, but
there is still no alternative in the global FX market to the US dollar. And I guess it’s
been behaving a little bit more normally during Iran shock.
Host
A bit less, less dollar-like, I guess. And then if the Australian – yes, but the Australian
dollar has actually been pretty robust all things considered, relative to other currencies, through
this episode.
Andrew Hauser
That reflects our interest rate path, which we talked about earlier.
Host
So, so that’s I think that’s leading exactly where I want to go with this last question
before we turn it over to the audience, which is the overall sweep of Australian financial prices:
the interest rate environment, the currency environment, the bank lending environment. What’s
your overall assessment of financial conditions in Australia right now?
Andrew Hauser
So I should say that when Dov asked me this question, you’ve noted the San Francisco Fed game,
which I don’t know what happened to the president of the San Francisco Fed, but it’s a game
in which – and you were quite cross about it – the only change you can make is the funds
rate, and then there’s this awful tick-tock tick-tock as you watch what you’re what
decision does to the economy. And it turns out that pretty much whatever decision you make, you get
this thing at the end that says, sorry, you caused a financial crash, you haven’t really
accounted for it. And it did make me wonder if that was a blessing in disguise. I went and did a
search for other central bank games, and pretty much none of them have survived. I’m not sure
why that is. The Bank of England had a balloon that you would fly up to infinity or crash into the
ground. That also you can’t find anymore. The ECB had about 58 games showing why it was a
much better idea than having multiple national central banks.
Host
There’s good news, we can vibe code one.
Andrew Hauser
Exactly. Well, good thought. And they’re not even on that history machine, whatever it’s
called. And look, I mean, we all know, don’t we, that the stance of policy is not just the short
rate, it’s 3 other things: it’s the expected future path of rates, as Ben Bernanke is
always keen to remind us, it’s whatever this blasted neutral concept is, and it’s the
broader set of spreads that transmit that into the economy. All three of those things have actually
been, you know, in operation in Australia in the last period. As it became clear that the data were
coming in stronger through the end of 2025, markets moved upwards. And actually, we’re often
accused of surprising the market, but actually we didn’t really surprise the market with our
rate rise in February. A little bit perhaps, but markets had seen these data come in. They knew, I
hope they knew, I think they knew, our reaction function, and they thought, well, these guys are
going to have to raise rates. And so you saw a tightening of conditions long before we raised. Now,
I’m often told by my Australian colleagues that this kind of channel doesn’t work very
powerfully in Australia because almost every mortgage is linked to the cash rate. But, you know, long
expected rates affect exchange rates, expected rates affect term borrowing by companies. There’s
still a pretty powerful effect there. That was in play. The concept of neutral, I mean, you know,
we’ve been round and round the houses on this, and there are many, many ways of estimating
neutral. Williams has his famous estimate and 3 or 4 others that we use. I remember years
ago at the Bank of England, somebody showed a picture of actual rates and then a picture of the
neutral rate, and the neutral rate was about 3 times as volatile as the actual rate. And Willem
Buiter, who was on the committee at the time, said it wasn’t obvious to him that the measure of
long-term, you know, equilibrium that was more volatile than the actual rate was analytically
terrifically useful. It’s certainly been challenge to factor neutral rates into our assessment.
It’s supposed to be very important, and as I say, we’ve been on the easy side of that
stance. So all three of those elements not in the San Francisco Fed model have been important in
judging our stance. And the problem is, of course, you can’t take all those things, shove them
into an algorithm, and say, oh well, the stance is actually X. You have to make judgments. And I was
always told the best way of actually working out what the central bank thinks the stance of its
policy is, is to look at its forecast for inflation. Because assuming that it’s conditional on
either the path that you set out or a market path, you should be able to judge better from that than
you can from any other input measure what they think the stance of policy is going to be. And
that’s where I always turn first, is where I’d recommend you go first too.
Host
Well, the Reserve Bank of Australia has one of the most illustrious histories is actually hitting its
inflation target in the world. So you guys got a lot of credit for that over time. Well, I’m
sure it’s going to happen again.
Andrew Hauser
That’s being too kind. Before someone reports that back home and says, ‘What’s this
guy been drinking?’, it’s true that since the beginning of the inflation targeting regime,
which funnily enough in Australia is a slightly disputed matter because it came in by degrees, but
let’s say something like ‘92, ‘93, actually inflation has averaged almost exactly
2.5 per cent. So if we were inflation target averaging over that very long period,
we’d have done fantastically well. We did, however, have the experience that the US had as well,
with inflation being, you know, below target pre-Covid and then quite materially above. So we’ve
got slightly lucky on the averages. So it is one of the questions I get asked most frequently is, you
know, ‘Have you got inflation under control?’, And I think it’s a fair question. And I
think particularly people remember what happened after Covid. Central bankers have to be pretty
humble about the importance of maintaining that credibility by doing the right thing.
Host
Andrew, dynamite response to that. So we’ll now turn it over to the audience. We have around
15 minutes to go through some audience Q&A. Igor Gavrilov, our President will pass the
microphone around. So please think about questions. Please raise your hands. I know there are a lot
of people who follow the Australian economy closely in the room and other people who may want to
learn things who don’t follow it closely. So please think about questions and please raise your
hands.
Questioner
I wanted to ask about the point you made about how in Australia the discussion is very much number
one, Iran. And, you know, we’ve been reading from afar about sort of the politicization also of
the political sensitivity of lines like, you know, at the petrol station. And I wonder if there is an
element – I used to really like when Christine Lagarde in, in, you know, 2022 would say, well,
we can look at inflation expectations and we can look at surveys, but to some degree we also have to
just look out the window and see, well, how are people behaving? How are people responding? To what
extent is part of the process here to really understand behaviourally how are people responding?
Andrew Hauser
Well, I think absolutely, and someone said in my introduction, like you said in your introduction,
when I was in the Bank of England, I ran our regional agency network for a period of time, which were
people around the country talking to businesses and asking them how things were really going. In
fact, that agency network learned most of its best tricks from Australia, because years ago Jacqui
Dwyer, who now works for us in a different role, came over on the secondment, if you remember, and
took one look at our operation and said, ‘You’re not fit for the 20th century. You need to,
you need to raise your game,’ and taught us how to do it properly, measuring conditions in a
very precise and scientific way. And the Australian system, which is where we have we don’t call
them agents, they quite like to be called agents, it sounds like government, but it’s not quite
as sexy a job, I have to say— but are based around, you know, the state capitals spread right across
the country and spend a great deal of time talking to businesses and, you know, community
organisations and the general public about economic conditions. And so those sorts of inputs, and I
know the Fed has a similar system. Those sorts of inputs become vital at a time like this, and
we’re heavily reliant on them because they can not only tell us things sooner, they can tell us
why things are happening, and they can tell us about sentiment. And yeah, I mean, if there were one
set of outputs I’d encourage you to read closely in the RBA’s publications at the moment,
it would be what the liaison offices are saying.
Questioner
Two questions. One is, I’m also an Australian company board, independent board member. I was
told with a rate hike, the consumption in Australia is getting very weak, almost like recession type.
Are you worried about, you know, with a high interest rate people are going to be even more, you
know, stressed out with payment of living expense, basically. And second question is, in the US or
Canada, European Union, they’re all starting stablecoin and all those. What’s the plan in
Australia to open it up for digital assets?
Andrew Hauser
Look, on the, on the first question, the concept of recession in consumption is probably a bit
dubious, but I mean, consumption is still growing, or at least it was in the much recent data. It is
relatively low, that growth, and that could well be because sentiment is weighing on that growth. The
latest data was 0.3 per cent in the most recent quarter. So it’s not spectacular, but
it’s certainly not in recessionary territory. We’re watching that closely. We did need and
do need private sector demand to slow a little, given the supply capacity of the economy. But it
isn’t yet in such dire circumstances, but we’ll need to watch closely. As we see the effect
of the oil price shock work through.
On stablecoin, the RBA has had a set of, I think we all do these sorts of exercises, you know sandpits
or whatever, in which we work with fintech companies to understand how we could link our payment
systems and our forms of electronic money into new and innovative forms of payment. I am personally
very interested in that topic. I think it’s important. The industry hasn’t settled on a set
of protocols which, you know, critical mass of people can get around? And one of the things I worry a
little bit about is this so-called walled garden problem. You mentioned major banks. Most major banks
have their own coins now, and they come with a kind of, oh yes, and obviously you’ll bank with
us as a result. And that isn’t quite what a central bank wants to see from a stablecoin. You
want to see one that has general acceptance and is safe and secure. And I don’t think we’ve
yet reached consensus on that, but certainly it’s an active discussion in Australia. I’m
not sure the Australian stablecoin model is going to, you know, lead the world. I suspect we’re
more likely to be a receiver of that technology as it’s developed elsewhere. It hasn’t
taken off in a big way yet, but we’re keen that when, and I suspect when it does, that
we’re a partner in that exercise and understand it, as I think we should be. And a final point
on that, I think central banks have to be careful here saying, oh well, these things are dangerous
and evolution, you know, will undermine the world as we know it. And obviously that could be true of
stablecoins that are poorly designed, is if you’re not careful, a license for being
yesterday’s hero. And in the Bank of England’s case, there are a number of elements of its
history where a failure to understand how the form of money was evolving meant that the central
bank’s ability to do its public policy job was diminished. Slowly sort of merge towards the
reality of the situation. And I think in this case too, central banks have got to understand this
technology, and if it achieves critical mass, embrace it.
Questioner
Just wanted to elaborate a little bit on some of the comments you made about some of the downside
risks. I guess, given monetary policy acts with lags and some of the cash flow impacts of the first
hike that occurred in February are only just starting to come through. And, you know, as you’ve
pointed out, the fall in sort of consumer confidence, there’s other factors like a decline in
auction clearance rates. How’s the Board thinking about sort of some of the lags of prior
decisions, as well as this significant income shock that’s occurring from diesel and petrol
prices, and how the data is likely to play out over the coming months?
Andrew Hauser
Yeah, the trouble of course is that you said February, and we obviously also raised rates in March as
well. The trouble is we’re not going to see the majority of those effects for some months. And
so, yeah, we do have to take that into account. We do in our forecast, we’re doing a new
forecast round at the moment, be out in a few weeks’ time, we will have to attempt to quantify
those effects. But it does, it does add to the challenge that we were describing before about
evaluating whether this oil shock, if it is a shock, how big a shock it is, does some of the job of
slowing the economy that rate rises would be expected to do, whether it substitutes or complements
that rate rise? That’s something where I’m not, this is a bad answer to a good question,
but I haven’t got any particularly concrete answer to give you today. But it is important and it
is part of the assessment. We’re certainly not going to ignore that.
Questioner
Just a follow up question with regards to consumption. Earlier you mentioned how important it is to
look at the RBA’s inflation forecasts. What about private sector credit? We’ve seen 5-year
highs, but now you’re starting to slow. We all know how Australians are obsessed with the
housing market and that’s such a massive feedback to consumption. As we look at inflation in the
context of a target, Has the RBA thought about private sector credit in terms of what rate of growth
would be an acceptable target?
Andrew Hauser
Well, and I think I’ve touched on this in the conversation and, you know, the growth of private
sector credit has been an important part of our assessment that financial conditions in ‘25 were
at the margin easier than the than the cash rate alone would imply, because banks clearly were
lending more to households, and you mentioned households, but also businesses as well. And Australian
banks are incredibly robustly capitalised, incredibly strong in terms of liquidity. The local
regulator sets itself a gold standard for that. You know, in a funny sort of ironic way, the
implication of that because you have entities that are incredibly well placed in them. They’re
certainly not looking at, you know, tidying up their balance sheets or pulling back. And they did
take the opportunity to increase credit growth in 2025. Many of the CEOs of the banks are new, and
you may know one bank perhaps represented at the back of the room today, you know, has from time to
time been one of the most valuable, if not the most the most valued bank in the world. So you have to
perform to deliver that kind of market expectation, and indeed they have. And it was one factor,
frankly, in the assessment that, there was excess demand in the economy as those data began coming
in. And we hear about those credit provisions in real terms, and it’s tricky, of course, right,
because banks are supposed to lend, you know, companies in particular have not been investing very
heavily in the last period, and they need to. And to invest, you need to borrow. So it’s
certainly not the case that all credit growth is bad credit growth, and even strong credit growth can
be very helpful. But certainly it was part of our assessment that we thought credit growth could
possibly, you know, have possibly contributed to these information conditions.
Questioner
As someone who lives in Sydney, so it’s good to hear that you get a lot of questions about, you
know, does the RBA have inflation under control? And I’m not a big fan of measures of inflation
expectations or neutral rates either, but as someone that does live in Australia like you, it does
feel like to me, outside of those official measures, thinking about liaison, that the ability of
firms, this is pre-conflict I’m talking about, the ability of firms to be able to, at the
margin, put their prices up in a, you know, across the board when you look at the data seems to be
pretty important in terms of, you know, why you haven’t hit kind of the 2.5 per cent
or actually been anywhere near it really. So my question is, what gives you confidence that
4.35 per cent on the cash rate, which didn’t really work before, why would that be
high enough time?
Andrew Hauser
Well, we don’t know. I mean, you know, we’re feeling our way. And, you know, as you
mentioned, there is a new shock to deal with. It’s interesting when you talk to companies, and I
know you do this too, that companies will tell you in Australia, as they do here in the US, that
they’re finding it incredibly difficult to get price rises through. And by that they mean, you
know, the huge squeeze they’ve had on costs over the past few years, COVID residue, and now the
new shock on energy as well. The rates will have to go to a level that bring inflation back to
target, to be totally frank with you. And if that means them going higher, it means them going
higher. If it means we’re high enough, it means they’re high enough. I wouldn’t say we
have high confidence that we’ve yet set interest rates at the right level, because you never do
have high confidence, but we’re going to have to monitor this new shock pretty carefully. There
are some models, as you well know, Justin, that say that a shock of this kind, which is very visible
and very obviously a shock in a country like Australia to pretty much every company’s cost base,
that that gives you an opportunity to put price rises through that you might otherwise have found
difficult to push through. And if that’s the case, well, we’ll have to react to that, but I
don’t know that we’ve seen enough yet to be sure. And I will come back to this point.
Inflation in Australia is too high, and at about 100 basis points above the midpoint of the
target in core, that’s not very different to the core measures of many other G20 countries.
I don’t mean by that to say that we, that we, that we’re complacent, but on the other hand,
the, the intensity of the policy debate in Australia, which I welcome, slightly loses touch with that
point that inflation in Australia is not out of the range of the inflation seen in other countries.
We all face a pretty similar challenge, I think.
Questioner
And the point I want to actually follow up on, that’s an interesting comment you just made,
would be that I believe in the United States as well, prior to the GFC, it was not normal for
inflation to be exactly at target. Yeah, before the GFC, it was actually generally overshooting,
generally 2.2.
So to what degree do you think we maybe forgot the way inflation behaved before the GFC in light of
our 10 years of post-GFC trauma?
Andrew Hauser
I mean, you know, the sort of dominant theory about that persistent undershoot was some sort of China
effect, wasn’t it? You can challenge that a little bit. It’s not obvious why a relative
price effect of that kind should affect relevant inflation year on year. But that was a story. And
models are calibrated on history, and that’s one of the reasons I guess it’s implicitly
addressed in this question why you do have to be appropriately sceptical of those models and look at
a range of indicators when you’re assessing how the inflation is going, which is still a
question in front of us.
Questioner
I have a question from your perspective as a policymaker in Australia, but also policymaker with a
global perspective, how you think about different central banks mandates, whether there’s a
single mandate or dual mandate, and whether you actually think that matters, or is optimal monetary
policy sort of the same regardless of that sort of formal structure?
Andrew Hauser
The RBA has a dual mandate, very similar in fact to the Fed’s dual mandate.
As you probably know, if you fit a Taylor Rule to central banks and you can’t see a material
difference in the average inflation settings between dual mandate and non-dual mandate. There’s
not a large sample, but dual mandate, non-dual mandate central banks. And I, to be honest, I think
the distinction much more apparent and real. And we’re all doing flexible inflation targeting,
right? We all understand that if inflation is away from target, and the pace at which you bring
inflation back will have outward and informal consequences. No central bank that I know of, even with
a single such as Bank of England, would ever say, I’m just going to do whatever it takes to
bring inflation back, bugger the rest. That doesn’t mean, on the other hand though, that
we’re somehow trying to hit two targets with one tool. We’re trying to hold employment
above its natural rate, or, you know, that we’re sort of giving up on the inflation target in
favour of something else. All those claims have been made about the RBA in the recent period. I
don’t think they’re fair, actually, because when we were cutting rates in ‘25, our
expectation and the expectation of most people in the market were for inflation to come back
relatively gradually towards the midpoint of the target. Those proved to be wrong. But it wasn’t
as if we were somehow going for an employment outcome instead of trying to stabilise inflation. We
felt that we could do both at once. So long answer, I think the distinction is more apparent than
real. I personally think it’s probably quite a good idea to recognise that employment and output
plays a role, but it isn’t something that you can try and achieve in addition to your inflation
target. It’s about how quickly you bring inflation back to target and how much you care about
retaining the output and employment gains. And as I say, we’ve been engaged in a bit of an
exercise to test that in Australia recently. There’ll be a debate, doubtless, as to whether that
exercise was a success or otherwise. I think it’s probably a bit early to actually judge on that
as of yet.
Questioner
Australia has a productivity problem.
Andrew Hauser
Yes. In common with most of the developed world, to be honest.
Questioner
As we look forward, you talked about the investment in technology, AI, etc. How are your forecasts or
expectations changing based on those potential returns?
Andrew Hauser
Based on what sorry?
Questioner
The returns from new technology, AI, etc. Will that improve the productivity outcome?
Andrew Hauser
I mean, my answer is I hope so, but we’ve revised down our productivity growth assumption to
0.7 per cent a year, which is pretty anaemic by Australian historical standards. Adoption
of AI and the latest technologies we were discussing earlier with others in Australia is, is not at
the leading edge at the moment, candidly. And some people would argue it’s quite good to be a
fast follower in new technology measure that people are still working out how it helps or how it does
not help. But to the extent that AI ends up being a substantial contributor to productivity growth,
Australia has some catching up to do, candidly. I will be the first, we will be the first to
celebrate if it turns out that productivity growth can exceed that rather limited forecast, because
we’ll start to see inflation come in lower for given levels of growth. But I think, you know, I
hope that is coming. I know that the government is keen to promote productivity growth in its own
decisions, and I think that’s important for Australia because all of these debates about
short-term trade-offs, which are deflation and all of the other things we talked about tonight, as
someone famously said, are second order compared to the ability of the economy to generate growth.
Australia’s had a great history on that. But certainly is in a constrained position at the
moment. Again, as I say, I don’t think that singles us out from the UK, really bad productivity
story Germany, Japan, many countries in Asia. All of us are seeking that next golden wave of growth,
but certainly in Australia it’s a very high priority policy issue, and I know government agrees
with that.
Host
Well, I want to say there was no trade-off that between lively commentary and insight. So thank you
very much for a fantastic presentation.