We think the Reserve Bank board should leave the cash rate at 4.35 per cent on Monday and say so without hedging. The argument for a September hike has been built on a labour market that is still tight. The August labour force report, published on 24 September, no longer supports that description. A board that moves anyway will be acting on market pricing rather than on evidence.
That is a narrow claim, and it should not be read as a claim that inflation is beaten. It is not. It is a claim about which risk is larger right now: moving too late on price pressure, or moving again into a labour market that is already loosening. On the August data, the second risk has become the bigger one.
The Australian Bureau of Statistics put unemployment at 4.6 per cent in August, with participation at 67.1 per cent. The headline employment gain of 39,500 looks healthy until you open it up: full-time employment fell 6,300 over the month. Part-time work did the hiring. That composition matters more than the aggregate, because households do not decide what to spend on the basis of a payroll headline. They decide on hours, and on the security of the job they already have.
The objection is real, but it is priced, not proven
The strongest counter-argument is that the labour market is still tight, and that a pause now would let inflation expectations drift. Governor Michele Bullock made a version of that point at CEDA on 22 September, and the market took it seriously. All four major banks now expect a 25 basis point increase to 4.60 per cent at the 28 and 29 September meeting, with roughly 90 per cent of that move priced in. Westpac is reported as a split vote. The Commonwealth Bank has pushed its first cut out to August 2027.
We take the objection seriously. It is not, however, evidence. Pricing measures positioning, not the economy, and the banks that flipped their forecasts did so after testimony, not after data. A central bank that treats a 90 per cent market probability as a reason to deliver has surrendered the thing that makes it worth having.
The lag argument cuts the other way
The cash rate has stood at 4.35 per cent since 12 August, after an extended tightening cycle. Monetary policy works on a lag measured in quarters, and it does not work yet. A shrinking full-time workforce, rising unemployment and steady participation together look like the early transmission of restriction, not like a labour market that needs another turn of the screw.
The ACTU has argued for a pause, and its motives are not disinterested. It never claims otherwise. But the substance of its case survives the motive. If unemployment is rising while participation holds up, the supply side of the labour market is expanding. That is the benign route to a cooler labour market, and it is the route the board said it wanted.
What the board should do on Monday
Hold at 4.35 per cent. Then do the harder part, which is to say what would change its mind. The statement at 2:30pm on 29 September should name the readings that would justify a move in November: a re-acceleration in trimmed mean inflation, wages growth that stops decelerating, or hours worked re-tightening in a way that shows demand rather than supply.
If the board hikes anyway, it owes the public a clear account of why a well-telegraphed market expectation outweighs a softening labour market, and a stated trigger for reversing. “The market expected it” is not a monetary policy framework. It is a communications strategy, and a poor one.
The broader point is about independence. Independence is not the freedom to surprise markets. It is the freedom to disappoint them when the data says so. Monday offers the board a chance to be unexciting, and correct.