RBA lifer Michele Bullock may have the luck of playing good cop to Philip Lowe’s bad

Australia is set to welcome its inaugural woman Reserve Bank governor, Michele Bullock, with the primary focus being a mix of continuity and transformation.

Consistency is key when it comes to Bullock, as he is a highly skilled RBA veteran with a wealth of knowledge spanning over forty years.

The main advantage Bullock has is that she is well-positioned to lead the Reserve Bank into the future, according to Anthony Albanese, and she is dedicated to implementing the RBA review recommendations, as stated by treasurer Jim Chalmers. This is the primary reason why Bullock stands out.

Over the past few weeks, certain individuals within the Coalition have been putting pressure on the Albanese government to reinstate Philip Lowe. They have been cautioning that taking action against him for implementing necessary interest rate increases would adversely affect the independence of the RBA.

On Friday, the Liberal senator Andrew Bragg was quick to speak up, asserting that if Lowe is not reappointed, it could result in a lasting increase in inflation because the Bank's autonomy will be compromised.

The opposition's treasurer, Angus Taylor, took a more cautious stance, appreciating the appointment without suggesting that it compromises the bank's autonomy.

Chalmers emphasized on Friday that the government highly values the RBA's autonomy.

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In addition to its impact on inflation and interest rates, the Coalition has endeavored to involve itself in the political discussion through alternate means.

In the blog, it was mentioned that Peter Dutton, the leader of the opposing party, expressed concerns about choosing Steven Kennedy, who is the treasury secretary, or Jenny Wilkinson, the secretary of the finance department, for the RBA role. This apprehension stemmed from the belief that their proximity to the government could potentially influence their decision-making.

Labor vigorously rejected that action, with Albanese denouncing it as a "completely unacceptable" exploitation of the government bureaucracy. He also pointed out that both Kennedy and Wilkinson, who were appointed to high-ranking positions, have affiliations with the Coalition.

Chalmers was also performing exceptionally well, rebuking Dutton for his incessant negativity, to the point where he is currently criticizing things that are not even taking place.

"We are not interested in receiving sermons from the political group associated with automated debt recovery," stated Chalmers.

In addition to the consistency and alteration, there are a couple of factors of the choice that exist in conflicting harmony.

Bullock is attuned to the government's inclination for altering the way monetary policy is established but resolutely autonomous with regards to every single judgment executed within the fresh arrangement.

I don't think individuals who have gone through 12 increases in interest rates would be concerned about that small difference, or the unusual criticism of the government towards the public sector, or how someone from within the Reserve Bank of Australia could be the most suitable person to bring about significant changes within the central bank.

The sole inquiry will revolve around the fate of my rates.

In this regard, Bullock is particularly fortunate. She will be equipped with the tools of fiscal regulation either towards the conclusion or very close to the termination of the process of constricting the economy.

Inflation, which reached its highest point in late 2022, is currently on a downward trajectory and is decreasing at a faster pace. Furthermore, other advanced economies are also displaying positive indications that this decline will persist.

Lowe, who has been tormenting homeowners for months with talk of "additional hikes" - please take note of the multiple mentions - has lightened up.

Lowe's current stance suggests there is a potential need for additional measures to be implemented. However, it is important to note that this need is not certain. It is possible that these measures may be necessary, but it is also possible that they might not be required.

Before stepping down in mid-September, there are still two meetings left, and it is highly likely that under Bullock's leadership, the initial change in interest rates will be a decrease rather than an increase. This would establish the new governor as the favorable figure in contrast to Lowe, who is viewed as unfavorable by the Australian public.

Despite the possibility of keeping the cash rate steady or slightly increasing it until 2024, Labor anticipates that by the upcoming 2025 federal election, the Australian economy will find itself in an ideal state with low unemployment and manageable, declining interest rates.

The opposing party may wish for the economy to improve, but oddly enough, they would actually gain advantages if inflation remained elevated for a slightly longer period of time.

Now, here's one final twist to add to the political equation: the implementation of stage-three income tax reductions.

As the International Monetary Fund cautions the UK about implementing tax cuts before the election, and the Tory party acknowledges that tackling inflation may prevent tax cuts, one ponders if the Albanese government will face a similar situation regarding stage three.

A week back, Chalmers remarked that the tax reductions, amounting to $313 billion spread across a decade, do not necessarily contribute to inflation.

"It's somewhat reliant on how the economy appears at the time when those tax reductions become effective in over a year," he shared with ABC Melbourne.

Labor desires the 12 increases in interest rates to exhibit their enchantment for two motives, namely: to conduct an election amidst a time of financial relaxation, and to evade challenging inquiries regarding their decision to return taxes when inflation remains elevated.

Lowe might have upset numerous Australians with his inaccurate advice stating that rates were improbable to increase until 2024, prior to putting pressure on individuals with mortgages.

However, if the tightening measures aid in achieving a gradual economic slowdown in Australia, then Lowe's term as governor will be perceived favorably in hindsight.

It's not surprising that Lowe, who was heavily criticized in the field of politics during 2022 and 2023, chooses to align himself with the government's appreciation. While the increase in interest rates has not won him popularity, he has provided his successor and the bank an opportunity to start fresh.