Minutes from the December meeting of the Reserve Bank of Australia: More confident in achieving target of lowering inflation.

The minutes of the December meeting show that the Australian Reserve Bank is more confident that inflation is continuing to move towards its target. However, given the recent rebound in consumption and the tight job market, it is now deemed premature to declare victory. The minutes from the meeting on December 9-10, released on Tuesday, show that the Reserve Bank of Australia discussed future easing policies to boost economic growth or maintain current restrictive levels. The committee believes that both outcomes are possible and chose to keep the rate unchanged at 4.35%, stating that recent data is not enough to change the policy outlook. Members pointed out that more information on employment, inflation, and consumption, as well as a revised set of staff forecasts, will be released at the meeting on February 17-18, suggesting that the review may be real-time. Traders expect the possibility of the Reserve Bank of Australia cutting rates for the first time in February to be over two-thirds, and they fully expect two rate cuts by July. The minutes state: "Members assessed that the risk of inflation returning to the target rate slower than expected has decreased since the last meeting, while downside risks to economic activity have increased. A concern for members is that if non-market sector labor demand suddenly slows down, the increase in the unemployment rate may exceed expectations." The minutes highlight the unexpected dovish stance of Reserve Bank of Australia Chair Michele Bullock this month. As most developed economies have significantly slowed down, Australia has been an outlier in the current economic cycle. For example, the Federal Reserve has hinted at two more rate cuts in 2025 on top of three rate cuts already made this year. At the same time, the minutes also indicate that the Reserve Bank of Australia remains sensitive to the possibility of strong consumer and job markets, which could thwart efforts to bring core inflation down to target levels. A private survey shows that consumer confidence in Australia has fallen and remains pessimistic, despite the unexpected drop in the unemployment rate to 3.9%. Business confidence has worsened, highlighting Australia's mixed economic results in recent times. Several factors are cited in the minutes explaining why policymakers believe economic outcomes could go both ways: various employment indicators may suggest that progress towards full employment levels in the labor market has stalled; preliminary signs from Black Friday sales indicate strong consumer demand; global service prices may be experiencing more sustained inflation than expected, which may also be the case in Australia; various risks facing the global economic outlook could limit further anti-inflationary progress; there is also uncertainty regarding the policy restriction level, as Australia's cash rate remains lower than or equivalent to levels of other developed economies. The minutes state: "Despite rate cuts overseas, market pricing and central banks' estimates of the neutral rate indicate that the monetary policies of several economies may be tighter than Australia's and are expected to remain so in 2025." The Reserve Bank of Australia's baseline forecast is for the unemployment rate to rise to 4.3% in December and peak at 4.5% next year. The preferred inflation indicator for the Reserve Bank of Australia, the trimmed mean, is expected to reach 3.4% by the end of this year and the upper limit of the 2-3% target range by mid-2025.