Speaking to ABC from Washington, where he is due to meet with Federal Reserve chair Jerome Powell, Jim Chalmers labelled inflation as “public enemy number one” courtesy of the war in Ukraine and issues in supply chains brought about by the pandemic.
Having already sat in various meetings with the finance ministers and central bank governors from the Group of 20 economies in Washington, Mr Chalmers said everyone is “very willing” to do “whatever is necessary” to try and deal with “out of control” inflation.
New inflation data from the US surprised to the upside on Thursday, showing an increase of 0.4 per cent in September and an 8.2 per cent rise over the year. This is expected to give impetus to the Fed to keep aggressively lifting interest rates.
In fact, industry leaders believe this new data has squashed any hope of a Fed pivot, with VanEck portfolio manager declaring that a Fed funds rate increase of 100 basis points (bps) in November can’t be rule out.
“We are likely to see a terminal rate above 5 per cent by Q2 2023,” Cameron McCormack said.
As a result, he predicted that the relationship between the Australian dollar and its US counterpart is likely to continue to be volatile in the short term and could test the 60c level.
This is something Treasurer Chalmers is particularly concerned about.
Ahead of his trip to the US, Mr Chalmers said he intends to raise the topic of the Fed’s rapid hiking cycle with Mr Powell, especially given the potentially severe consequences he believes the widening gap between the US Fed rate and the local cash rate is having on the Australian dollar.
“I'm not pre‑empting decisions by the US Fed or the Australian Reserve Bank but the mechanics of it are pretty clear,” Mr Chalmers said at the time.
“When there's a big and widening gap between US interest rates and Australian interest rates that risks putting downward pressure on our currency, that makes imports more expensive,” he added.
Speaking to ABC ahead of his sit down with the Fed chair, the Treasurer said, “the steepest synchronised tightening of monetary policy that we've seen in the inflation targeting era obviously has consequences”.
“Not just for inflation, but for growth and unemployment as well,” he said.
Turning to Labor’s upcoming budget — another topic the Treasurer plans to discuss in Washington — Mr Chalmers said the government’s focus is on what’s “responsible and affordable, and sustainable and targeted”.
“We can't have money spraying around in an excessive way or in an untargeted way,” he said.
“We need to make sure that any assistance we provide to Australians or that other countries provide to their citizens is sufficiently targeted with an economic dividend, so we don't make this inflation problem even worse, and make interest rates go up more than they would otherwise”.
Maja Garaca Djurdjevic
Maja's career in journalism spans well over a decade across finance, business and politics. Now an experienced editor and reporter across all elements of the financial services sector, prior to joining Momentum Media, Maja reported for several established news outlets in Southeast Europe, scrutinising key processes in post-conflict societies.
