World Economy Confronts Tough Journey To Complete Recovery

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In terms of monetary policy, the RBA remains committed to its three-year yield target. It will decide whether to renew this program, targeting November 2024 (currently April 2024) bonds later this year.

As Chief Economist Bill Evans noted after the RBA meeting, we expect such an extension to take place, since the RBA believes that a cash rate hike will be justified no earlier than 2024.

In terms of asset purchases, the RBA stands ready to “undertake further bond purchases as long as it contributes to progress towards full employment and inflation targets,” as announced in April, rather than simply “as needed” in March, further signaling the Bank’s commitment to achieving his goal for the economy.

Global Economy
Data and events outside Australia this week continued to draw attention to US strength. Following last week’s outstanding US nonfarm payrolls report, which reported nearly 1.1 million new jobs in March, adjusted for January and February, and a 37-year high in ISM’s manufacturing survey of this week: ISM non-manufacturing PMI printed at record high; The IMF has revised its growth expectations for the US and the world, and the minutes of the FOMC meeting held in March showed that the Committee is very pleased with the progress made.

However, it is also clear from the March minutes and from subsequent remarks by Chairman Powell at the IMF event that the US still has a long way to go towards full recovery. Thus, the policy must remain extremely flexible until further significant progress is made. In terms of jobs, Chairman Powell commented at the IMF event that “a series” of results, such as March, is needed before a cut in asset purchases can be considered, given that employment remains 8.4 million below pre-pandemic levels.

Regarding the risks to this perspective, while the FOMC is closely monitoring economic momentum and inflation, they may see a large potential risk to the economy associated with financial conditions if inflation expectations rise from here and adopt nominal term interest rates, taking them into account.