Speech Fireside Chat at the ABE Annual Dinner

Be kind to me.

When your boss says be kind to you as you’re sitting down. Well, thank you, Besa for the introduction, and hello to the Governor of the Reserve Bank of Australia, and my boss, Michele. So thank you for joining us on this, the ABE’s night of nights. The annual dinner. So I think it’s probably fair to say that in the course of our engagement at work it’s usually you asking me the questions, like what’s going on in that data, why are your forecasts wrong? That sort of stuff. Well, tonight the shoe is on the other foot. I have to say I feel dizzy with the power. Actually you’ve got no cause for concern, Michele, because I only have two objectives tonight. One is for us to have an interesting and engaging conversation for our membership. And the second one is to make sure I still have a job tomorrow so I think our incentives are aligned. So we might kick off then. So you’ve recently just passed the two-year mark in your role as the Governor of the RBA. So this is a two-part question. So in those two years as Governor what have been the most rewarding parts, other than working with me, and what have been the most challenging parts, other than working with me?

Yes, so two years. It’s hard to believe. That’s absolutely flown and I’d have to say upfront that I’m very honoured to hold this position and very humbled by holding this position. I actually work with great people, including yourself. So I’m very, very fortunate to have the job that I do. And I get to meet a lot of really interesting people. So I think, you know, I feel very, very privileged and very, very honoured by that. What’s been some of the fun things, the amazing things, I think there’s been a few things. I’m really happy with the way that we have managed to get inflation under control. So a lot of the heavy lifting, of course, was done by my predecessor as the Chair, but I took over in September and then we did raise interest rates one more time with me as Chair before we sat for some time but I’d have to say that what we’ve managed to achieve, and I don’t want to count my chickens too soon, but what we’ve managed to achieve in bringing inflation back down and managing to maintain some of the gains in the labour market for me has been a very satisfying outcome. I’d have to say that was probably the challenge as well. Inflation was - peaked at 7.8 per cent, I think when I came in it was 6 per cent. So the challenge of getting it down, I think, was - it was - we were never 100 per cent sure. We were very cautious. And I’ve said it before but it was a very deliberate strategy of the Reserve Bank Board to try and bring inflation back down to target in a measured way. It was a very deliberate strategy. It was a very deliberate strategy to try and maintain the gains we had at employment because you might recall that many countries, including Canada, New Zealand, the US, the UK, Sweden, their interest rates went much higher than ours. In some cases by 5 per cent. And we were under a lot of pressure from some commentators to actually increase interest rates much further than we did. But we did stick with our guns and interestingly our labour market outcomes have been much better than some other countries, particularly Canada and New Zealand, I think. So I think that’s been a really satisfying part of the job. I’d have to say the challenge - and the other thing I found really satisfying is the way that my team, the Reserve Bank team, has lent into change in the organisation. So we’ve had a couple of reviews. We’ve had a lot of change going on. And I’ve just been so blown away by the way the teams have lent into the change. They’ve tried really hard and I think we are making some real progress on the culture in the organisation. On the challenges, interestingly the things that probably keep me awake at night, the challenges, are not the monetary policy ones. They’re the things like a certain 65 Martin Place building, which is riddled with asbestos. And as many of you know what started as a renovation project has become a development now. I’m not a developer. None of my staff are developers. So we’ve got - this is a really, really challenging situation and I’m very, very conscious that I need to be getting advice from people who know what they’re doing in this stuff so that sort of stuff I find challenging. The other thing is we are - you will probably all know - but many people don’t realise we do much more than just set interest rates. We do government banking. We run a very important payment system. We distribute bank notes. We have big operational needs and we have massive IT, just like commercial banks we have a massive IT operation and some of the challenges for me, about how we keep our cyber defences up, how we keep our operational resilience up. We’ve had some reasonably challenging outages which - so I think that those - ironically those are the sorts of things that I felt most challenged by in this role. How do I, I’m an economist. How do I actually deal with these very operational parts of the organisation, and partly it’s surrounding myself with people who know what they’re doing.

Yes. That’s a good answer. Having spent a couple of years myself as an economist but in other parts of the bank it’s fascinating and we really do cover a very broad range of things inside our building. You mentioned the review and it’s now been about two and a half years, I think, roughly since the review was published. Now, there’s been lots of changes. Lots of those changes have been very well publicised and people in this room will know about them. But what do you think have been some of the more significant changes that might be less visible to people from outside the institution?

So there are visible changes that you will all have noticed. So there was a move to eight meetings a year. There was the press conferences after every meeting. We’ve started publishing much more detail on our forecasts and our estimates of spare capacity, things like that. They’re all things that the review asked us to do. But internally there’s been - I’d say there’s probably a couple of key changes. The first thing is we have overhauled really our processes leading up to Board meetings. So from the very start of the process up until the press conference finishes, that whole process now has undergone quite a bit of change. And it’s been changed in a way to try and get as much diverse opinion into the process as early as possible. So that we’re not making up our mind, sort of, close to the Board meeting. We’ve had internal discussions which have been debates, discussions, and so we’ve overhauled all of that and I think that’s been really positive. It means that by the time we get to the Board meeting we have really gone the rounds on all the possibilities that we possibly could think of for the Board. So that’s sort of the what. So there’s sort of different sorts of meetings than we used to have. They’re occurring earlier. They have much more input from different sorts of people, more junior people, all of the policy areas have an opportunity to contribute to the discussion, so I think that’s really positive. The second change is something that the review called out, and I’m looking at Luke because he was sort of involved, Luke Yeaman. It was our culture. And what the review called out was that we tended to have a culture of perhaps people not saying what they thought but perhaps just saying what the boss wanted to hear or what they thought the boss wanted to hear. And so we’ve put a lot of effort into trying to have an open and - what we call an open and dynamic culture in the organisation. Open to ideas. Open to diverse opinions. And dynamic in the sense of trying new things and - now, there’s some things that you don’t want to mess with. You don’t want to mess with the payment system, RITS. You don’t want to try experimenting there. That’s very important. That’s stable. But in other areas can we try things and do things differently and does it matter if we try something and it doesn’t work? So we’ve tried to introduce a culture that is much more encouraging of that. Respectful challenge. Respectful diverse - people should feel free to express a different opinion and they should understand that they’re being listened to. So, you know, I often used to say to people that, just because I don’t end up agreeing with you doesn’t mean I didn’t listen to you. I think it’s really important we listen and we understand where people are coming from. So that’s a cultural change. I think we’re still partway through it. I don’t think it’s all the way there yet but I’m encouraged by the feedback I’m getting that people do feel that they can speak up more. They do feel they have been listened to and I think we get better decisions and better discussion when people feel they can do that.

Yeah. Hear, hear. I agree with that. I’ve been at the RBA quite a long time as well and I think there’s always been challenge in the building but it feels like now it’s almost become a little like an agenda item. Like a where could I be wrong here, where could we be wrong in thinking about this. I think that’s great for the institution. You’ve talked a little bit - reference to the economy before. Let’s maybe have a little bit of a chat about the international side of things before we turn to the domestic economy. You’ve just come back from Washington DC for the IMF annual meetings, the G20 meetings. When I was there at a time in the New York office I got to experience that. It’s a buzz. A lot goes on. You’re very busy. You speak to a lot of people. So we just thought a lot of that stuff is - there are meetings. Not on the record. That sort of thing. You’re talking to a lot of your central bank peers. Just wondering if you could maybe share with us some of the common themes to emerge from your discussions while you’re at those meetings and then possibly where there are any areas or issues where the Australian perspective is a bit different.

So there’s a few topics. I mean, inflation and unemployment was one sort of area where, particularly, with my peers from other central banks we often were discussing, how’s it all going? I’d have to say that generally on the inflation front most central banks seem pretty comfortable that inflation is coming back down. Common with ourselves and many others is stickiness in service inflation. Many countries are experiencing this. So even though they’re seeing inflation start to come back down towards their targets, they’re still seeing services inflation as being a bit sticky. I think many of them feel that the spare capacity that’s being induced by the fact that interest rates were higher is going to continue to bring that inflation down but some of them have experienced, unlike us, so the area where we are different and I alluded to this earlier, some of them are experiencing higher unemployment rates. So some of them have seen the higher interest rates actually start to impact their - so some of them got unemployment rates above 6 per cent now. The US is not in that camp. The US has done astoundingly well and continues to do quite well, considering everything that’s going on there. So there was a lot of talk amongst central banks, I suppose, about inflation and unemployment. The other topic that sort of came up a bit as well was, a little bit of head scratching about the markets. Why the markets are so sanguine about what’s going on in the world economy. Not just the world economy but also with all the geopolitical tension out there as well. And people are scratching their heads. People are thinking, well, you know, could it all end up very badly. So there’s sort of no answers there but people are just a little bit flummoxed about why there’s credit spreads are really low, the risk premia are really low. What is it that the markets are so comfortable about? They just think that there’s going to be no bad outcomes here and I think some people are worried that that might all end in tears. And the third topic that popped up a lot was deficits and government debt, particularly in the context of Europe and the United States. We’re a bit different there again because we have got relatively low compared with many other countries, relatively low debt-to-GDP ratios. Our deficits aren’t - we’ve had a couple of surpluses and the most recent deficit, in fact, is they’re quite small as well. We’re in a slightly different space than some of them because some of the European countries in particular - they’re seeing pressure to spend more on defence. So there’s all of that. So that sort of topic was also a theme. And then finally there was a sort of a grab bag of financial stability sort of themes. So there is a bit of a push in the US on the regulation side. So I think they’re looking, I think, for ways to - I think people sort of refer to it as making regulation more efficient. The UK is looking at it, I think Europe is looking at it as well. The US is making a very big push in this direction. So I think there was, in some quarters, a little bit of concern that they didn’t want to see, for example, Basel III watered down. They wanted to make sure that Basel III was implemented because it still hasn’t been fully implemented. So there was that little sort of worry. But then there’s this whole sort of series of things like stablecoins. What might that mean for financial stability? There’s a variety of views on the one hand. Some people think that actually it’s got no financial stability implications at all. It’s nothing to see here. And then there are others who are a little bit worried that if they grow a lot and they are quite heavily involved in government debt markets and debt markets generally then there might be potential problems there. So they’re sort of some of the broad themes, I think, that people were sort of thinking about.

We might actually turn then to the domestic economy. So - and actually let’s get to the here and now and focus on some recent data. So the unemployment rate for the month of September, up to 4.5 per cent. And then we’ve seen some of the detail in a couple of the recent monthly CPI indicator prints pointing to possibly inflation being stronger than expected, than me and my team expected in the September quarter. So unemployment a bit higher than expected but inflation also a bit higher than expected. What do you make of all of that?

Yes. Well, so first of all I guess I’d say monthly numbers can be volatile and the jump up in the unemployment rate was a bit of a surprise, as you said. That it jumped so much. But monthly numbers can be volatile. And we do know sometimes that they jump up and then they jump back down again. So I don’t want to leap at a single number. I’m conscious also that - and I made this point at the previous press conference about the inflation numbers. That, yes, the monthly inflation numbers are also very volatile, and I should say that when we get the full monthly CPI in November for October I think it is, isn’t it? Monthly numbers are going to be more volatile, even though it’s going to be a full CPI and not an indicator anymore. It’s still going to be volatile. That doesn’t mean there isn’t going to be interesting information in there. As we highlighted at the time what we’d seen from a couple of monthly indicators was dwelling costs and market services both looked a little elevated. So that was sort of a bit of an alert for us. So on one hand we’ve got unemployment a little bit higher and on the other hand inflation a little bit higher. So I think the way the Board is thinking about this is, I think they’ve used the word cautious before. The Board we - as I said earlier we didn’t go up as high as other countries. So it might mean we don’t have to come down quite as far as other countries. I often get asked where we think neutral is, the neutral interest rate, we don’t really know. We think we’re still a little bit restrictive. We think the neutral rate is probably a little bit below this. We still think we’re a little bit restrictive. We think that it’s still - when we look at the forward-looking indicators for the labour market that doesn’t appear in the medium term to be suggesting that the unemployment rate is going to deteriorate quite markedly. We always thought it would drift up a bit, maybe it’s drifted up a bit further than we thought but it’s not a huge amount out. So I think we just have to wait. We just have to wait for a bit more data. You know we’ve got a Board meeting coming up next week. We will have a new set of forecasts along with that. The forecasts are based on, you know, our models, our judgments about the way relationships work between the various variables in the economy and so we’ll do our best guess at what we think - we know where we were sort of at the end of June. What do we think we’re going to be looking at moving into the next six months and on that basis we can make some decisions about whether or not we think there’s some more interest rate cuts to address perhaps the employment market or whether we’re a little bit more worried about the inflation rate but let’s be, you know, positive in a sense. Inflation is back in the band. It’s not down at the midpoint of the target range which is where we’re supposed to be aiming, but it is back in the band. And the unemployment rate is still pretty low, compared with where it was pre-COVID. So I still think we’re in a pretty good position.

Just don’t say that too loudly, all right. Where’s some wood we can touch. As central bankers we worry, worry, worry. Always worry. There has been - yeah, some remarks made about the RBA being backward looking, in terms of our - setting policy. What are your thoughts on that?

So I think - I don’t know whether or not this sort of idea that we’re backward looking comes from, the concept that we talk about ourselves as data driven. We’re not saying that we’re only looking at past data and making decisions based on that. We have to be forward looking and we’re forward looking in a number of ways. We use the data that we’ve got to say, well, this is how we knew we were in, say, June of this year or September of this year. We know where we were then. What do our models tell us about how the economy will respond. What sort of forward-looking indicators do we have, and there are forward looking indicators. We have surveys. We have, as I mentioned earlier, some forward looking indicators of the labour market, vacancies, quit rates, those sorts of things. They all give us a bit of a guide on what might be happening. We have our liaison program which is very important and that gives us a good idea about what businesses are thinking and I have to say that it’s usually pretty reliable. It’s pretty - I’m quite impressed with - it’s not absolutely spot on and it doesn’t give you necessarily 100 per cent correlations with things but it does give you a good feel for what the business community are feeling and I think that does give us some sort of forward-looking angle. So, no, I don’t agree that we’re backward looking. Yes. We do take the data we’ve got and we anchor there and we know where we were but then we look forward and we look forward using our forecasts, using our models, using our judgment and using these other sorts of information we get from surveys and our liaison programs.

And as someone who has spent a long time in RBA forecasting, I can tell you we do spend a lot of time thinking about forecasts. We all know that forecasting accurately is difficult and we have to be humble so that’s why we take into account a whole lot of things. I think my favourite forecasting quote ever is “forecasting is like trying to drive a car blindfolded. Receiving directions from someone looking out the back window”. You think about that it’s not actually that far off from the truth, I think.

Yeah. And I think you’re right. I mean, there’s many people around the room here who do forecasting too and you have to be humble. I mean, you do your best but things don’t always turn out and - as you forecast. But you have to be ready to accept that you might have misread something and change your mind. You do have to be ready to do that.

Absolutely. Absolutely. So we’re going to have some time shortly for - we’ve got some media present as well as of course our ABE members to ask some questions but before we get to those I’ve got some questions for you, and I can honestly say Michele has not seen these questions. These are five getting to know Michele Bullock questions. Quick response. Let’s see how we go. All right. All right. So I’ve seen you weave your magic on the touch football field on numerous occasions over the years. So remembering there are no right or wrong answers to these questions. What’s your favourite footy code?

Rugby.

Rugby. Which one?

Union.

Incorrect. Rugby. Okay. Fair enough. Okay. This one I think I know the answer to but it’s an important question for many people. Dogs or cats?

Dogs.

What’s your go to karaoke song?

It’s Kiki Dee and Elton John, Don’t Go Breaking My Heart.

If I knew that beforehand we could have sung that up here. That would have been great. Next time. Next time. All right. So what’s one thing, maybe a hobby or an interest, that you’d like to spend more time doing? I’m sure you’ve got plenty of spare time as Governor.

I’d like to spend a bit more time playing the guitar. I taught myself to play guitar during COVID and ever since I’ve just not had enough time to do it. So I’d like to get back to it.

Me too. Maybe we should jam. All right. Last one. Quite recently you became a grandmother for the first time, so congratulations. Now, which do you prefer, being a mother or a grandmother? Now, before you answer that I just want to know like - well, your granddaughter is obviously too young to understand this conversation but this is on the record so at some point she can go looking for a transcript.

This is very difficult.

Only the tough questions for you.

I’d have to say at the moment being a grandmother. But having said that I really did enjoy my kids growing up.

The Bullock children are throwing things at the screen right now, how could she put the grandchildren before us. Thank you for that. We now have some time for our audience to ask questions. Now, the way we’re going to do this logistically is - well, firstly, anyone can ask a question but we’ve got two mics set up. So the mic over on this side of the room will be for media. So we have a media table over there. So if media want to ask a question you can queue up behind that mic. Anyone else who would like to ask a question to the Governor, there’s another mic over this side of the room. So please make your way over to that mic and be ready to ask your question. Now, just a couple of questions. We’re going to take maybe two or three questions from our non-media guests first. But when you do ask a question from either mic, please one question per person to give as many people as possible to ask theirs. If you do try and sneak more than one question in the Governor will only answer one and she’ll choose which one it is. That’s your incentive to ask one. We have someone at the mic. As you ask your question can you provide your name and affiliation, please.

Thank you, Michael, thank you, Michele Bullock. I’ve got one question for each of you. Michael, what is your Q3 CPI forecast for trimmed mean? And Michele, what constitutes a material forecast miss for the Board? Is it 20 basis points or does it need to be more like 30? Thank you.

Well, mine is easy to answer because all I can do is refer you to the Statement on Monetary Policy from August and we published that in there and we can back out of that. Over to you.

I don’t think the Board has ever discussed what a material miss is. I think it’s a little bit in the eye of the beholder quite frankly. But if you ended up with, say, 30 basis points, that for me would be a reasonably material miss so our forecast for - was 0.6, I think, wasn’t it for the September quarter, yeah, in the August Statement on Monetary Policy and so if it came in at a 0.9 I think that would be quite a material miss.

Sometimes as well the devil is in the detail too. You’ve got to understand what drove the miss as well which is really important. That’s a really unhelpful answer for now but it does matter.

Hello, Governor. Good evening. I’m just wondering, your comments on stickiness on service inflation, particularly when you were discussing it globally at the recent IMF meetings, I was wondering if there was any common thought of what was driving that stickiness in services inflation and whether that is possibly related to saving the gains in the labour market and perhaps maybe the labour market is still a little bit too tight and that’s generating some of that stickiness with inflation. Thank you.

I think overseas, I think there’s a feeling in some of the economies that do have sticky services inflation that it is related a little bit to wages and labour market, although as I said earlier, some of those countries think that actually the slack in the labour market is going to bring that down. So you’re seeing countries like the UK, even though they’ve got a little bit elevated services inflation they’re continuing to lower their interest rates because they do think it’s going to come through on that. In our case I think it’s worth noting that unit labour costs are still growing by about 5 per cent. So that is something that I think is possibly holding up services inflation. It’s also possible though that there are just some idiosyncratic things going on with services inflation. Certainly I think we observed in some of the monthly CPI indicators that take out and restaurant meals were sort of still a bit elevated. That could be grocery prices. It could be sort of food that’s driving a little bit of that. It could also be that there’s still, as we said, just a little bit of tightness left in the labour market and we do - I know everyone doesn’t agree with this but our judgment is that there still is a little bit of tightness in the labour market. That I think is one reason why we might be observing services inflation hold up.

We’ll take one more from this mic and then go to media.

Michele, what you were hearing from central bankers abroad with financial markets and being too sanguine and things like that. You also mentioned I guess we all learn in the forecasting business from where we got it right or wrong and the surprises. In light of all of that, how are you and the bank country thinking about uncertainty, because we’ve mentioned it a lot and we’ve had a number of episodes of uncertainty but yet, the markets and the global economy have been remarkably resilient to that.

So there’s a couple of ways that we’re thinking about and dealing with uncertainty. The first point I think with uncertainty, and I’d have to say unpredictability as well which is not quite the same thing in my mind anyway. They’re a bit different. What we’ve been thinking about is what that might mean for consumers and business’s spending plans. So it’s quite possible that uncertainty will put businesses off investment. So certainly - and overseas I think there’s a concern that it doesn’t seem to have eventuated yet but there is still some concern that businesses are holding off a bit on investment. We haven’t seen that so much in Australia and we haven’t really seen, either consumers or businesses in Australia reacting really to this uncertainty overseas. So we haven’t really been - so we’re looking at it - what it might mean for overseas but we’re not really seeing it show up here first. The way we are dealing with uncertainty and the forecasts surrounding that is we are doing a lot more scenario analysis. So we are looking at - and this is sort of - I mentioned earlier about some of the things we’re doing differently internally that you mightn’t necessarily notice. We’re investing more in scenario analysis. We’re doing more on alternative rate paths and what that might mean for our forecasts. So we’re trying to look at, if we are wrong, what direction might it be and what might the implications be if we are wrong in that direction. So that’s sort of the way we’re trying to handle the uncertainty associated with what’s going on.

Thank you.

Have we got any questions from the media mic over there? Thank you.

Hello. Luke Kinsella from the Financial Review. Governor, the RBA noted in its last meeting that equity risk premia are close to a multi-decade low. Are you concerned that the RBA has cut rates and will likely continue to cut rates, at the same time when people are seriously considering the possibility of an AI bubble?

Well, I mean we’re not aiming at asset prices. The worry on the asset price side of things, as I alluded to earlier, is that if markets all of a sudden decide that things are not as rosy as they thought, it might have financial stability implications. It might mean that financial conditions tighten quite a lot. And that’s actually bad for the economy. So if you had those sort of circumstances you might be looking at central banks around the world and possibly even us lowering interest rates even further in the face of potential tightening in financial conditions, if those things unwound. But we’re not - we’re not looking at asset prices. We’re looking at those to get a sense for financial conditions but we’re not aiming at those sorts of things. We’re very focused obviously on inflation and employment and what we’re really interested in in the context of the asset markets is what it might mean for financial stability and what that ultimately might mean for financial conditions if the markets take a very big directional shift.

Okay. Back over to the other mic.

Thanks, Mike. Hello, Governor. Good to hear you’re feeling a bit better. I just wanted to ask you about perhaps extending on the answer or two ago about the impact of the tariffs and the trade war. We’ve done some work which suggests that actually it might be positive for the Australian economy, mainly through the terms of trade effect, and this is we’re getting lower import prices and potentially getting more investment. Is that something that you’ve considered? We’ve done a bit of anecdotal kind of work around this talking to many clients and it doesn’t seem that there’s many clients negatively affected. In fact, some seem to be finding export opportunities they didn’t have before. Is this the sort of thinking that you’ve also been doing at the RBA?

Yeah. We have been thinking about it. I think our feeling is for the reasons you talked about that if anything, what’s going on will potentially be deflationary for Australia, for the reasons you highlighted. One might be trade diversion. It might be that the effect on terms of trade, if China slows, for example, quite a lot, as a result then the effect on the terms of trade. Of course, the exchange rate also helps us here. So it would, to some extent, help buffer us. In fact, you’ll recall back in April when the tariffs were announced the Australian dollar took a massive dive. So the dollar does sort of help buffer us but I think our feeling generally has been provided it’s not a really extreme trade outcome that we’re not really going to be heavily affected and if anything it might help the deflationary process a little bit for us. So, you know, there’s also questions about whether or not there might be investment opportunities here, if people are sort of a bit uncertain about investment elsewhere. Maybe they’ll think about Australia as sort of a reasonably settled and calm country at the moment. So there might be some other positive impacts. So we’ve sort of tried to capture some of this in our - not only our central forecasts but also when we’ve done a scenario analysis we’ve tried to look at what those sorts of things might mean for Australia. Yep.

Back to our media friends.

Thank you, both. Governor, I just wanted to ask as you mentioned one thing you’ve been really proud of is keeping the gains in the labour market post-pandemic. But you don’t sound that concerned by the monthly rise in unemployment which is partially the result of some of that momentum coming out of the pandemic being lost. You know, we were having 30,000 plus jobs being created on net each month for three years and now that’s down to something like less than 8 per cent through the last six months - sorry, less than 8,000 jobs. Are you ready to let that momentum go, that post-pandemic momentum go? Should we get used to less momentum in the jobs market?

Sorry, I missed the last part of the question there?

Should we just get used to having less momentum in the jobs market?

So you highlighted the point which I think is important that there are still jobs being created just not as many. And that’s partly, I think, reflects the fact that - and this is a lag, of course, that what we’re seeing in the jobs market now is reflecting what activity has been doing for some time. It’s not instantaneous. So we did slowish growth in GDP through this period and I think we are seeing the gap in the - as I said, we think that the labour market is still a little bit tight. So this is bringing back the labour market a bit more to balance. So the labour market there’s still employment being created. The other thing to remember here is that we think the supply of labour isn’t growing as quickly as it was. So even though employment isn’t growing as quickly the supply of labour is not growing as quickly either. So that means that the unemployment rate might rise a bit but it wouldn’t necessarily rise by as much as you might expect if we were still seeing lots and lots of supply of labour coming into it. And then as I said earlier if you look at things like they can see rates, quits rates, voluntary separations, those sorts of things, they don’t suggest and our liaison with business, when we talk to the businesses there’s a large chunk, maybe half the businesses we talk to who say they still find it a little bit difficult to get labour. To get the right skilled labour. So there’s still signs out there that the labour market is a little bit tight and that it’s not actually going to all of a sudden fall off a cliff. So I think we’re watching it. We are conscious that we want to try and keep the unemployment rate as low as we can, without fuelling inflation and how close are we to that? We think we’re closeish but it’s very uncertain. So we’ve got to be prepared to consider different possibilities and if it looks like we’re wrong on that then we have to be prepared to change our mind and move.

Thank you. Over to our other mic.

Yes. Hi, Governor. I have got a question on payments for you. So on Friday the Reserve Bank, you announced you were going to take longer to be doing your review of retail payments. Separately you’re going to be getting powers quite shortly that are expanded. Your options in retail payments. Are you going to be conducting two reviews? Are you going to be continuing with the existing review and then do a separate bit of work under your new powers? Or are you going to be bringing them together and having one review that covers both your existing powers and your new powers? Thank you.

So we’ve got a Payment System Board meeting coming up in November so I don’t know what the Board will decide. The powers don’t come in until December, the new powers. I think the way that we’re thinking about it at this stage is that if there are some reforms we can make that will be no regrets reforms, that we can do without actually having to use the new powers then we would look probably to try and do them. If we - I think the main issue here is that if we waited to get the powers and we did a whole new review we’re going to be looking at a very long period of time. So, again, I think what we’ll be looking to do is are there things we can do now that won’t - we won’t regret doing, even when we’re looking at using our new powers in the future.

Back to the media.

Thank you very much. Governor Bullock, Michael, thank you for the wonderful event. I was sitting at a table, it was a long walk. I hope you don’t mind. I’d like to give you each a chance to talk a little bit about NAIRU. We’ve kind of been talking around it a bit and I wanted to pick up on something you said just now in the previous answer. Talking about there’s still a little bit of tightness in the labour market. If you could talk a little bit about the NAIRU, maybe a little bit about the potentially higher inflation number and I know you get a lot of advice the scenario is lower, the narrow is higher. Michael, maybe you can fill us in with how the banks - I’ll read the FOIs but I’m not a doctor of e economics, I’m maybe not across all the detail but maybe you could colour in a little. If we were to go to higher unemployment rate and a higher inflation print at the same time does that mean the narratives may be a bit higher or how would you think about that sort of logic?

A couple of points upfront, the NAIRU is an uncertain concept. We don’t know what it is. It’s a sort of a theoretical concept. I always like to point out to people that we don’t just fixate on a number, the NAIRU, and that’s it. We are looking at a whole plethora of labour market indicators to give us an idea about what’s going on in the labour market. Why I worry about the NAIRU and everyone’s sort of obsession with the NAIRU is that it gets reported as the Reserve Bank is aiming for an unemployment rate of X, we are not aiming for that. So that’s why I get a little bit concerned and I try to suggest to people don’t get too fixated on a number for the NAIRU. Having said that what we can’t observe it but what we can observe is inflation and wages and unit labour costs. So we can observe these things, they give us an indication of whether or not we think the labour market is still a little bit on the tight side or a little bit on the loose side. If for example, we saw no more disinflation and inflation started to rise again and we saw perhaps wages picking up then that might suggest to you that the unemployment rate is currently below the NAIRU, if you like. But again I caution against just fixating on one single number because I don’t think it’s very helpful.

I guess having started a career in the 80s we used to deal with enormous lags in data and very limited information. It’s very interesting sitting on an equities desk at the moment, the speed of the data, the enhancement that AI and technology has given, I’m just interested in your journey and what perhaps excites you in some of the data sources and the speed of it that you see in your role.

I can tell you that I’m not the person sitting at the computer dealing with the numbers. I’ve got lots of people who do that for me. I think what’s exciting and this sort of started a little bit when COVID came in and everyone was grasping around for data, it turns out there’s lots of data out there. Lots of companies have data. The government has lots of data. So I think what quite excites me is that with all of - with technology and all these new data techniques that hopefully we’re going to find a cost effective way of harnessing the government data, the commercial data that comes from businesses. I mean, you already see this with the ABS, for example, and CPI. They now can scrape data and do all sorts of things to get actual data much more quickly and much more timely. And then I think the other thing is that we can look in an anonymous way to marry some of the individual data. So you’ve got quite granular data and being able to use those granular data and marry them with different sorts of datasets I think is really potentially quite exciting. So you’ve got granular data, for example, from the Tax Office and you’ve got some granular data from - I don’t know - the Commonwealth Bank. Maybe there’s a way of marrying up some of these data in an anonymous way to give you insights that you might not otherwise get. So I think that’s sort of the exciting thing about it.

That’s a good question. We have lots of people who love microdata and are interested in using the microdata to answer the macro questions. I think just reflecting that too when I joined the bank the liaison program started. I think the bank’s liaison program we used to think about that the data was pretty infrequent. You’d think quarterly GDP, quarterly CPI, liaison was a really good way of supplementing that information and trying to fill in the gaps. Over time now we’ve got the opposite. We’ve got so much data. I actually find liaison is really helpful in trying to sort through all the various messages you might get from data. The way it interacts with our liaison program is a little bit different as well. Back to the media mic.

You brought it up so I’m going to ask an obligatory question about the neutral rates which you said policy is perhaps marginally restrictive. It seems to me that over the past year when we decipher the various charts and information you provide that the number has moved around quite a lot. I think 3.5 to 2.7, maybe 3.1 at the moment on a chart in the last week or two, which seems a lot of variability for - despite the vagueness - a fairly important concept. Is it the data that is moving and causing those changes in what you’re publishing or is it different interpretations, tweaks to the models on part A, I know the two question limit, but clearly there’s also a trend where it appears to be rising through those various iterations. So whether you have any comment about where that neutral rate fits, in terms of the structure of, markets and how it appears to be rising, as well as the volatility in the estimates.

So you’re right. I think we have about seven models, different models of the neutral rate. Some are structural - more structural models. Some are more, sort of, econometric autoregressive-style models. And they give a big range. Anywhere between 1 and 3, I think, and that’s just the central estimates. That doesn’t include their bands of error. So it’s very wide. I think if you look at the neutral rate over time, I think generally it was falling prior to COVID, not just in Australia around the world, because ultimately you can sort of have a slightly different neutral rate but it’s heavily influenced by what’s going on around the world as well. And what we’ve observed, I think, and we’ve observed this in other countries as well, in the US, is that since COVID it’s been rising again. So it has turned. Now, how do we - I wouldn’t say we use it in any sense in a sort of a - we don’t sort of sit around as a Board and say, well, where’s the neutral rate and where’s our rate and we’ve got to get to here. It’s too nebulous for that. But again I’d come back to the NAIRU point. It’s all of the financial conditions that tell us whether or not we think we’re on the tight side or not. So that’s things like we’re talking about risk premia and risk-free rates, those sorts of things that are telling us, well, maybe there’s sort of an easier financial conditions there. We’re seeing credit start to pick up again. We’re seeing housing prices pick up. So maybe that’s indicating that conditions were a little bit easier than they were. But still we observe that household credit is still not rising relative to disposable income. It’s just flattened out. So there are still signs that financial conditions, we think, are maybe biting. So I guess - and Chris Kent gave a speech about this a week or so ago, I think, talked about how we try to think about it. So, yes, there’s a neutral rate somewhere in the background there but really what we’re trying to do is assess financial conditions more broadly and that’s telling us whether or not we look tight relative to a neutral rate or not. I’m sorry it’s not really a firm answer but it’s a nebulous concept.

And just to add to that for the nerds amongst us we estimate the NAIRU, potential output and the neutral rate, our super nerds in the RBA estimating the neutral rate is the hardest of those three to pin down. It’s just so imprecisely estimated that it makes it very difficult to think of it as a useful policy tool. But estimating those models is sort of helpful because maybe over time we can see - when you sort of know conceptually things that move the neutral rate, so by looking at these results we can at least get a high-level sense, what are the big picture forces globally and domestically that might be moving the neutral rate. We don’t recommend thinking about it as short-term benchmark. We might get a final question from this mic over here.

I’m interested to understand from yourself, Governor Bullock, and also Dr Plumb, perhaps firstly also thank you for the entertaining conversation this evening but as we head into the November meeting a lot in the market are wondering around the external Board members and the way in which their going to vote. We have no attributed votes. We haven’t heard from any of them in terms of public speeches so it is quite difficult for the market to ascertain which way they may land on the day. I know Governor Bullock at the last press conference you said that you didn’t know which way they would vote, we understand that but what can the market do to learn more about these external members and when are we going to hear from them after six months?

It was a recommendation of the review that Board members speak publicly at least once a year and that we publish unattributed votes. We knew the minute we published unattributed votes people would say, yeah, but who voted what way? So anyway. But the fact is we have a different system than others. I know it’s now the Monetary Policy Board but four of those members are the same members that were on the Reserve Bank Board and there’s two new members. And so we have established a way of trying to - perhaps once a year get some of the Board members out there. But these Board members are not like Federal Reserve governors or external members from the Bank of England that have staff that do forecasts for them and some of them are not even academic economists. So I think it’s a bit - it’s a little bit sort of difficult to squash our model into the sort of mould of what you’re referring to which is other countries, everyone’s out there giving speeches. They’re all out there attributing their votes. We’ve got a different system. And I think we need - we are implementing the review in a way that still works for our particular system. Now, you will start to hear from some of the Board members in various sorts of forums but it’s not necessarily going to be them giving up - standing up there giving a speech saying, I disagreed with Michele on XYZ. They might talk a little bit about what we’re thinking as a Board and so on. And they’re also, I don’t think, going to attribute votes. They’re not going to say - they’re not going to stand up and say, I voted yay or I voted nay. So I do think we have to accept we’ve got a different model here. We are trying to give a bit more transparency around that but there’s sort of a limit, I think, given what structure we’ve got at the moment. It doesn’t mean we can go as far as someone like the Fed or the Bank of England. That would be my response.

In the interests of not finding an empty cardboard box at my desk tomorrow I think we might let you finish up, Michele. You’ve been extremely generous with your time and thanks so much for sharing your views with us here tonight at the ABE annual dinner. Put your hands together, please, for the Governor.

Thank you, everyone.