Fireside chat Fireside Chat at the Melbourne University Faculty of Economics & Business Foundation Dinner

Good evening, Michele. Hello, everybody. Governor, thanks for joining us tonight. We’re in the beautiful Mural hall at the Gallery. I think you had a chance to see the exhibition before we started. I think the obvious first question, what’s more important in economics? Is it art, the human side of things, or science, the hard data?

That’s an interesting question. I would say that it is an art, I would say, but we like to try to bring a bit of science to it as well. But as was alluded to, actually, it’s not easy. Forecasting itself is not easy. It’s not a science. What you’re doing when you’re forecasting and you’re modelling is you’re basically summarising the individual decisions of millions of Australians and millions of people around the world, and you’re trying to put them into single equations and it doesn’t work quite like that. It’s not a science like that. So I do think there is probably a bit more art to it.

Fair enough. We will come back to those millions of Australians making millions of decisions. But maybe we could start with one of your big decisions that you made early on. You grew up in Melbourne until you moved to Armidale. I think you were nine at the time. You’re now Australia’s top economist and you’re graced us with your presence here. But it could have been so different. You had a position at the University of New South Wales in medicine. What was the sliding doors moment that brings you here rather than up in Parkville at one of our great hospitals?

So, yes, I did. I was born in Melbourne and I moved when I was about 8 or 9 to Armidale. So I really am a country girl. And as Esdras talked about, I don’t think the region and the country ever leaves you. I still consider myself that. But when I was in year 12, I was quite young in year 12, I was only 17 and I’d been accepted to do medicine in Sydney and I had never ever really been to Sydney. I had no experience of the city and I just didn’t. I wasn’t sure, I just didn’t know. And so my dad, who worked at the uni, he arranged for me to have a chat with a professor of economics at UNE, and I’d quite enjoyed economics at school, but I hadn’t done quite as well as I thought I would in the HSC. And I thought, oh. And I spoke to him and he said to me, actually, economics at university is completely different. And it turned out it was. And so the sliding door moment really was, and I remembered my dad taking me out to lunch and saying, have you made your decision? And I decided to stay in Armidale, go to UNE and do economics. And the sliding door moment really was the conversation with Professor Treadgold, who put me in a place where I thought, yes, this could be interesting and I could be good at this.

Was it love at first sight with economics or more of a slow burn?

No, it was particularly when I was doing it at university. I think it was really love at first sight. And the thing I loved about it was I was good at maths and I was absolutely ecstatic to find out in first year uni that being good at maths was really good for economics. So I felt much more comfortable working analytically and working mathematically, econometrics, those sorts of things, than writing lengthy essays, which didn’t really suit me very much. So, yeah, that was a good surprise.

Do you ever wonder what sort of doctor you would have been?

Well, that’s another, actually another little tidbit there which also emphasised the sliding door moment. I had a number of people come up to me and say, if you’ve been accepted to medicine, you can’t possibly turn it down. And I got my back up a little bit about that. I thought, that is the wrong attitude. You’ve got to think that you want to be a doctor and you want to contribute and be good. You don’t do it just because you got a high mark. So I got quite stroppy about it. And so what sort of doctor would I have been? I actually don’t know. I suspect I might have ended up in research.

Fair enough. Well, I’m a bit worried about the next questions now. You mentioned Esdras great story and you’re a proud country person. What do you think that country background, what does it bring to your current job?

I think a few things. I think a country, the country background and the background I grew up in, it was a very wide group of people, people you had. I was just at the local public school, public high school, and I had friends who had parents who were professors at the uni. I had friends whose parents were truck drivers, I had friends whose parents were teachers. It was a very broad church of people. And I thought, and I think what that has given me is an ability to actually talk to all sorts of people in an authentic way. When I first came to Sydney, one of the things that sort of put me off a little bit is when I’d meet new people, they’d say, what school did you go to? I’d say Armidale High School. Oh, they didn’t know how to deal with that. But I think, you know, the country background, the exposure to lots of different people with lots of different experiences, I think has equipped me very well, not only as a leader, but also in dealing with millions of stakeholders that I deal with.

Yeah, absolutely. You mentioned Professor Treadgold as a sort of key person who put you on the path. Were there other economic role models or inspirations or mentors that have been important along the journey?

So when I went to London School of Economics, one of my professors there was Professor Charles Goodhart, and he’d sort of had a deep interest in economics. He’d been with the Bank of England, and I just loved being in his classes. He really inspired me to think about monetary policy. And so on that side, I think there was that. On the professional side, there’s been a few key mentors in my time and names you would recognise people like Glenn Stevens, people like Phil Lowe, John Laker. So really fabulous men who, because during my time at the Bank, I have typically always been the most senior woman and they were men who saw something in me and encouraged me and brought me up.

You mentioned you started the RBA in 1985, I think, as you were finishing your honours years. We heard it a little bit before about the importance of internships, and that’s how you started there. When did you get the sense that the RBA was a place that not only you wanted to work, but you’ve never left?

So I always wanted to do public policy. I wanted to sort of give back and I wanted to do something for Australia, and I had some various opportunities. So when I first started there. Let me tell you the story of someone who’s in this audience, Ian Harper, wherever he is. Ian Harper interviewed me for a job at the Bank and he interviewed me for the internship. And I reckon I got one out of every three questions. Every two questions I had to say, I don’t know. And I walked out of the interview and I said to one of my fellow students who’d come down from Armidale for interviews with me, I said, I’m not getting a job at the Bank, that’s for sure. So you can imagine my surprise when, in fact, they did hire me, they did offer me an internship and I was very pleased. I was pleased because the RBA at the time, they just floated the … When I was an intern, they just floated the Australian dollar. And that was the first sort of step towards among a number of steps, deregulation of interest rates, all those things that started to give the Reserve Bank some independence in its policy. So being there during that time was really inspiring for me to see that things were moving in that direction. So that was, I think, through those first few years and getting a scholarship from the Bank to go to London School of Economics to study further was the other thing. And that’s really what bonded me to the institution.

It was. It’s very unusual, though. There wouldn’t be many people in this room who’ve stayed with the same employer for 41 years. I think you’re in your 41st year this year. Has there been moments when you’ve thought, oh, I wonder if the grass is green on the other side? There’s a few investment bank tables here. They’ve got great offices, good perks, business class travel. Have you ever been tempted?

Yes, I have. I, a number of occasions I did think about the possibility of moving and I did, in fact, do some interviews. In the end, though, it came down to me, it came down to what was I looking for in terms of service and did I want to have a job that made profits, lots of profits, for a financial institution, or did I want to do something which was for the Australian public? And that is what’s kept me there. The other thing that’s kept me at the Bank is that even though most people just think of the Reserve Bank of setting interest rates, it is a very diverse institution. It’s a bit like a conglomerate. It’s got a banking. It’s got payment systems, it’s got printing banknotes, it’s got payments oversight. And I’ve been so fortunate that I have had so many different moves into different areas that I haven’t had a career that’s very sort of in a tunnel. I’ve really moved around a lot and I think that’s been, so I’ve not got bored.

Conglomerates are great for demergers. There’s a few investment bankers and lawyers who’d like to talk to you later. There is a challenge there, though, that obviously you’ve got deep respect for the traditions and the philosophy, the history of the place and its role. But you’ve also got to be able to push back and I guess be willing to challenge the institution and change the institution. How do you sort of get that right in your head and then put it into action? Has that been difficult ever?

No, I don’t think it has been difficult. I know that a number of people suggested that I was an insider and therefore I couldn’t transform the institution. I don’t think that’s the case at all because I knew what I thought had to change in the institution. And there were a couple of things that we needed to do better at. And one was internal challenge and debate. We needed to do that better. We did some of it, but we needed to do more of it. We needed to do it better. And the other thing was we needed to engage externally better. We were doing, again, we were doing some of that, but we needed, I think, to engage much more actively with external debate. Because I don’t want people to accuse us as being in a bubble. So we have a lot of things we do. We have a business liaison program which helps us with that. But I also wanted, and we’re doing this now, I want the teams to be engaging with external researchers, with external economists, debating issues with them. We don’t necessarily know all the answers. So it’s good to have challenge and debate. And so I think that I had a good sense of that because I was an insider.

Are you feeling it start to change from that perspective?

Yes, I think it is starting to change. I sense certainly internally that there is much more willingness for staff, including more junior staff, to put a different point of view, to challenge what might be the status quo. And I also think there’s been some really good examples where our analysts and our researchers are going out and they’re picking up ideas and they’re not dismissing them. So a very good example I think of this is the debate that’s been going on for some time about the NAIRU, the non-accelerating inflation rate of unemployment. We had some views about it, we had models, but others external to the Bank had different views. And my teams, our teams, they got out there and they tried to understand those points of view and they really engaged with the debate. And I think that’s been a really important example.

Is it difficult though? I mean, often everyone thinks they can be a journalist and I imagine sometimes everyone thinks they can run the RBA. How do you sort through the important bits of challenge, the less important bits of challenge? Do you feel that process is rigorous enough or rigorous?

I think it is reasonably rigorous. I mean, the fact is that there are lots of people out there who absolutely know with absolute certainty what we should be doing. And I never really have that degree of certainty. I’m always a little bit doubtful. But you’re right, there’s people out there who do have very firm views. We engage with those views, we debate those views, we turn them over internally. And I think, you know, people would expect us to, quite frankly, the public, we are making decisions as an independent central bank. We are not elected officials. But we need to be accountable to the public and we need to make sure that we have turned over the rocks. So I think it’s important that we engage as much as we can with that.

There is still, though, I feel sort of mystique around the RBA, you know, big granite headquarters, imposing, not quite sure what goes on behind closed doors. You know, is there plush carpets or secret lunchrooms or whatever it is, you can let us know about that. But sometimes I think that mystique is probably a bit useful, too. Is there a balance there to be struck?

Well, the trend recently with all central banks, I think, has been to do away with mystique and try and be much more transparent, try to make it much clearer what our reaction functions are so people understand what we’re reacting to. No mystique about the building. It’s just a big building fiddled with asbestos at the moment. But I think it’s. No, I think mystique is the wrong sort of thing. I think respect. I think what I want, what I would really like is I would like people to be able to say, I don’t necessarily agree with what they’re saying, but I understand why they’re saying it and I trust that they have done the work they need to understand it. Because economics is about judgments. Reasonable people can differ on different, as we see every day in the media. So for me, it’s much more important that rather than be mysterious and so on, that people can say, well, look, I don’t agree, but I do understand how you got there and you’ve done a good job of explaining it to me.

Donald Trump’s got some very firm ideas on central bank renovations, too, if you want to run that past him. One of the big changes that you’ve had versus your predecessors is, of course, that we get to see you every six weeks or so following the RBA board meeting. How have you enjoyed that process?

I wouldn’t have used the word enjoy.

It looks like you’re enjoying it sometimes.

Sometimes, maybe, it depends a little bit. Look, when I first started, I was quite uncomfortable with it, and I’ve got a little more comfortable with it. And it’s not something that I would say I enjoy doing, but I also accept that I do need to do it. And as I said earlier, it’s related to the fact that we are an independent central bank, we are setting interest rates to achieve our goals of price stability and full employment. And I do think we need to be accountable and people need to see me stand up there and explain myself. So I think it needs to be done. And some people are really good at standing up in front of media and others are not so good. And I just do my best.

Do you think it makes the RBA better, that process?

Yeah, I think it does. And one of the things we’ve been trying to do. So one of the things out of the review of the RBA, one of a number of things, but one was a point about communication, how we weren’t communicating very well and we sort of had some relationships with media outlets and we talked to analysts and so on, but I think there was a feeling that we weren’t explaining ourselves to the Australian public very well. And the way I think about it when I’m talking is I think about, what if I was explaining this to my mum, how would I explain it to my mum and my mum’s friends? And so sometimes I hear people say, oh, yeah, but the analysts and the traders, you know, you don’t say anything particularly interesting. And to which my response is, I’m actually not talking to them, I’m talking to the Australian public through the media, through the press conference. And I think it does make it better. And recently, with our new communications team, we are starting to do surveys of people and we’re identifying groups of people that are not as economically literate as others. And one thing that comes through in these surveys is that they admit they’re not really economically literate. They don’t understand it, but they want to understand it. So we’ve got to find ways of explaining things to them. And again, it comes back to that point I made earlier. They may not agree, they may not like it, but at least they will understand where we’re coming from.

There’s always a danger, as Governor Lowe found out of overcommunicating. Is that towards the forefront of your mind as well?

Yes, it is. And let me just say up front that I thought it was very unfair the way he was represented. What it did demonstrate to me was that it’s very difficult to get across a message with qualifications. So you can qualify something as much as you like, but people will zero in on a little tiny bit of it. So there was all these qualifications and about interest rates won’t go up until 2024, but no one listened to any of the qualifications, and they just heard, won’t go up until 2024. So for me, the lesson was that you’ve got to be quite careful in what you say because people leave out the qualifications. And that’s a challenge for economists, because we’ve got lots of qualifications.

Yeah. And I guess I’m feeling a little bit certain, seen as a member of the media, that we tend to focus in on the one thing as well. But I guess it does go back to what you just said, that the person at home, your mum and your mum’s friends, they’re trying to wrap their heads around it too, and the qualifications can be tough to get, be tough to get your head around.

Yeah, it is. And so I think one of the things that my communications team talk about a lot now, so we had some communication, we were quite tactical with communications. We’re trying to be much more strategic with our communication now, identifying areas where we need to communicate more, we need to change our message, we have different layering of communications, some more technical for those who can deal with it, others simpler. So that’s the sort of way we’re trying to approach it. And the thing that the communications team keep telling me is, you can never say certain things, you just have to keep repeating yourself. So a really good example is that there is a misconception, which is held by quite a few people, that lower inflation means prices will fall. And so getting this message out, which I’ve been trying to get out and I’ve been repeating and repeating, is we’re lowering inflation, but prices are not falling. It just means they aren’t rising as quickly anymore. And this is. You may all think that’s really obvious, but for some people, that is quite a subtle message and they don’t quite get it. So these are the sorts of things that we’re trying harder to double down on.

Governor, you mentioned earlier that for most of your time at the RBA, you’ve been the most senior woman in the place. We’ve now got several senior female leaders across the federal scene. Head of the Productivity Commission, chair of the ACCC, Secretary of the Treasury, the incoming head of ASIC. Does this feel like a moment or does it just feel like the way it should be anyway?

Well, I think it is an important moment and I also think it’s good that we’re seeing women rise to take on these positions, because as we talked about, I’ve talked about in another fora, it is good for young women coming through studying economics to see that there are senior women in economics. And I actually spoke in Geelong today. I spoke for about 700 school students, about 250 in a room and then some online. And a lot of them were boys. But there was, I was quite surprised that there were quite a few girls there as well. And so I think it’s really important that. And I came to this idea, I’d have to say probably a little bit late, because when I first started work, I’d been sort of brought up, my parents brought me up to not actually think there wasn’t anything I couldn’t do. So I never had this feeling that just because I was a woman, I couldn’t do certain things. It only became a little bit obvious to me as I got through my career that that maybe wasn’t what everyone thought. So I do think it’s important that I get out there and I support young women coming up through the ranks. And I think it helps that you can see women in senior positions now.

When you see the, you know, when you talk to groups of school kids and when you look at the RBA’s own intern intake, is there enough future Michele Bullocks coming through the ranks, the ones who get past the job interview of course?

Yes, of course. Look, I think there are. But some of you would know that we’ve been doing quite a bit of work. We have a public education team who are working really hard to get just more students into economics full stop. And there is a tendency for economics to be mainly boys, mainly from private schools. So I actually don’t even think my old school offers economics anymore, my public school. So there’s a tendency for economics to be sort of studied at school and we find that that has a flow onto university. It doesn’t have to, but it tends to. So we are working really hard to try and work with the curriculum and try and get more girls, more people from a range of different diverse backgrounds, cultural backgrounds, and also from different socioeconomic areas into economics because we need that diversity.

It speaks to the work that the Melbourne Foundation is doing. You mentioned the importance, the formative moments in your early career where central banks, the RBA’s independence was being established. I guess central bank independence is a pretty hot topic at the moment. Have you, do you know Kevin Walsh at all? Have you had much to do with him?

No, I don’t know Kevin. I haven’t met him. I will soon enough, I think. But he had a good relationship with Glenn Stevens through the global financial crisis. So he was on the Fed board at the time times. So, you know, he’s known to us. And typically we do have good relations with the Federal Reserve governors.

And can you just give us a bit of an insight into it? What does that cooperation do for the two central banks? Is it, you know, just another way of tapping some more ideas or is it a bit more developed than that?

No it’s, when we meet, I think people feel quite free to share their thoughts so we can get good information from other central banks about what they’re seeing in the economy, their economies, the world economy. And of course, being a small open economy, that’s really important for us, what’s going on in the world. So it’s a great opportunity to hear frankly and without any sort of holding back what they are seeing and we can give the same to them. And, and I also think quite frankly, it’s a little bit like a support network when things aren’t going well here.

Yeah, Jay Powell looks like he enjoys his press conferences too. Just to come back to that idea of, that broader idea of central bank independence, I mean, clearly for you it’s a bedrock of monetary policy. Do you sense threats to it at home or abroad?

No, I don’t think I do. And we’ll just have to wait and see how things play out in the United States. But so far I would have to say that the chair, Jay Powell, has stood very calmly and kept his eyes focused on what he needs to be focused on. And that’s a sign of independence. I think it’s reasonably well established now that having a model where central banks are independent to achieve their goals, which usually always involves inflation and sometimes involves some other things like unemployment for us and the Fed has also got unemployment there as well. But as I said earlier, with accountability, that means that we can pursue those because low and stable inflation is just so important for the functioning of the economy. And I think that’s been established over the inflation targeting period that the way central banks have managed to keep inflation low and stable has been very important for keeping economies, there’s always outside shocks like the GFC and the pandemic of course, but keeping focused on low and stable inflation, I think has been, with independence, has been critical to steadying the ship.

There’s an awful lot going on in the world and you’re probably like you wake up every morning and something else has happened in some other part of the world and then lots of stuff going on locally. If we were to get another shock is that when the independence is going to be really the value of it is going to be particularly proven?

Possibly. I think often in crises, what you find is that the independence of all the institutions comes to the fore. I remember during Covid and I wasn’t so involved in the GFC, but similar when there are big shocks and it’s impacting everyone, everyone tends to come together. And it’s the central banks come together, it’s the regulators in the domestic economy come together. So, you know, Covid, the government, the regulators, banks, everyone came together. What can we do? So I think it’s not that we don’t have independence, but I think we use it in a slightly different way when there’s a crisis and we come together.

Does the world feel like a shock is possible?

I think anything’s possible. The markets seem remarkably sanguine about things, I have to say at the moment. But it does seem that every time we think something really, really bad is going to happen, so the first sort of tariffs, for example, they get wound back. There was a period there where Greenland looked a little dodgy, but then it got wound back. So I think everyone’s nervous. I don’t think people and markets know quite how to price some of the tail risks here, but it is a bit of you wake up and you look and see what happened overnight and does it have any implications. At the moment, from my perspective, we just have to sort of take that as given and we have to focus on where the issues are at the moment, which I think is domestically for us.

Alright, well, let’s come to that. It’s been three weeks since the RBA Board decided to raise interest rates by 0.25 per cent. Tom, you’re very much focused on this idea of the balance of risks between the two sides of your mandate, inflation and employment. We’ve had a couple of bits of data on both of those sides of the mandate. Labour, jobs data last week, a monthly inflation number this week. I know the monthly inflation number can be very noisy and the RBA is still wrapping its head around that to some extent. But can you give us a bit of an insight into how you’re seeing those risks develop?

Yes. So it’s probably worth just going back briefly and going back to sort of the middle of the year, sort of. We’d been lowering interest rates because basically demand was not growing very strongly. We had inflation coming down. We were hearing from our liaison program that the labour market was sort of softening a bit. People were finding it easier to get labour. So there was signs that things were heading in the right direction. And then you had the world economy, which was sort of everyone was predicting the world economy was going down the tube, basically. And then sort of in the middle of the year, sort of from September on, we’d lowered interest rates a third time in August. Then from the middle of the year, things just started to look a bit better. Credit was recovering strongly, housing prices were rising, demand was recovering more than expected. Inflation started to pick up, the world economy was looking now actually better than it had and forecasts were being revised up, so everything was pointing in the opposite direction. So all the risks were shifting that way. And I think there was a recognition in February that inflation was now too high and the forecasts were that it wasn’t going to come back into target very soon without some action on financial conditions. So that’s sort of where we found ourselves, I think the risks more on the upside, as you say, and I think the correct response at that point was to react as the Board did.

And at the moment, are you, in a way in the data gathering phase to try and figure out how the balance is going to shift now?

We’re always in that. Now, the comment earlier about you’re driving blind with a driver directing you staring at the rear-view mirror, that’s. It’s a funny analogy, but I also like to emphasise to people that, yes, we know the data that we’re getting is from the past. At the very least it might be current data, like liaison data and so on, but that’s our starting point. And then we have to use what we know about historical relationships, our models, those sorts of things, to think what does it imply going forward? So we’re not backward looking, we are trying to be forward looking, but forecasting is inherently difficult. We have to do it, we do our best, but the data, when we say we’re data driven, it’s not to say we’re reacting to individual bits of data that happened in the past, it’s to use those data to cast forward. And what does that mean? And therefore, how should we react?

Will we, us in this room and millions of Australians, will we need to be a bit patient while that sort of, while we find our way through that fog?

I think we will have to be patient. I think we’re in a situation where. Let me go back a step. When we were coming out of COVID and inflation was heading up to 8 per cent and interest rates were zero, there was no doubt what we had to do. We had to raise interest rates and we had to raise them quickly and they had to be a fair bit higher. Now we’re in a situation where the labour market we think is a little bit tight, inflation is a bit elevated. I don’t think we think it’s taking off again, but it’s a little bit elevated. We thought we were sort, the economy was sort of in balance, maybe it’s a little tighter than we thought. So we’re sort of in this position where it’s actually quite a good position where the economy is sort of recovering and this is where it’s difficult. So the judgments are a little bit more difficult. It’s not like we’ve got a situation where it’s very clear what we have to do. We’ve got ourselves to a position now where it’s close to balance, maybe a little bit tight. And that’s why people have to be patient.

And just when you think about that change that you described from February, from the middle of last year to February, are you and people in the Bank thinking, gee, that moved quickly. Do we need to think about whether, you know, cycles are speeding up or there’s a change in what we, you know, the usual models that we rely on?

Yeah, well, we have been thinking about that and we have been thinking about what our models are to telling us, what our surveys are telling us, what our liaison is telling us. And we have changed our view a bit on the extent of excess demand in the economy. We thought we were pretty close to balance, but the evidence is coming out suggesting, no, actually we’ve got to rethink our forecast again, our models here. Are they giving us. So it’s very difficult to know whether or not you’ve got the labour market in balance or whether or not you’ve got excess demand when you’re close. As I said, if you’re one direction or the other a long way, it’s very obvious, but at the moment it’s not so obvious. So we are thinking about that.

Well, the backseat driving will continue, I’m sure. Governor, before we wrap up, I’m going to personalise this a little bit. I’ve got a 17-year-old son, he’s studying economics at high school. He actually quite enjoys it. I said, oh, it’s pretty hard. And he said, oh, dad, it’s just supply and demand, mate.

It is.

But I’m trying to say to him, look, economics, that’s a great thing to be thinking about. Can you make the pitch to him and lots of other high school kids? Why is a career in economics still really important?

So it’s important for a number of reasons. It’s important because the economy impacts everyone, it impacts all our lives. And actually, whether or not you are an economist doing work in the public service or in a bank or there’s lots of other branches of economics as well. You know, health economics, for example. So whether you’re doing that or you’re just doing your everyday life, you are making economic choices all the time. You know, I think the first thing I got taught in year 11, economics was, apart from supply and demand, was economics is the study of unlimited wants and limited means. It’s all about how we decide to divide up pies, how we decide to grow the pie. And so it’s really relevant to all sorts of decisions we’re making in our lives. Speaking of children, my son never did any economics. He always sort of did science. He ended up in health. And during COVID when he was allowed to visit, during, you know, when we weren’t in lockdown, he was sitting on the couch one night and he said, said to me, he was talking to me about the economy and what’s going on. And he’d been reading a lot about Alan Greenspan for some reason, I don’t know why, and he said to me, you know, Mum, economics should be compulsory, he said, because it’s so relevant to everything. He’s reading the papers, he wants to understand why things are happening. And it’s also relevant in his own life, in terms of his earnings, his superannuation, his investment decisions, all these sorts of things. So, you know, if you can turn him around, then hopefully we can turn your son around too.

Absolutely. Well, I have unlimited questions, but we have limited time. Ladies and gentlemen, will you please thank Governor Bullock for being so generous with hers.