In economics and politics, optimism is a commodity.
Faced with holding an election before mid next year, optimism is what Anthony Albanese is now selling.
He doesn’t just need interest rates to start actually falling before he goes to the polls, he needs Australians to believe the depths of the cost-of-living crisis have passed and things are finally on the up. And he needs them to start believing it now, not wait until they can feel it in the hip pocket.
Albanese can’t afford national optimism to be hitched to a day and a date, contingent on a single rate-cut decision – and ideally a few more – taken in a bank boardroom on the first Monday and Tuesday of the month.
In economics, optimism is valuable because it breeds confidence, and confidence brings investment. Confidence in the economy heralds confidence in the government. So it’s valuable politically too.
On the flipside, for an economy teetering on the brink of recession, pessimism is dangerous. People who can’t see an end to the fiscal pain will stop spending and businesses will lay off workers – and that’s potentially deadly to an incumbent government’s re-election prospects.
So Albanese is determinedly upbeat. Since last week’s September-quarter inflation figure landed, his message has become more direct.
In an address to the Australian Chamber of Commerce and Industry to be delivered on Wednesday night, it was overt – repeating his weekend message about positive signs.
“There is new cause to hope that the worst is behind us,” he said in a speech text provided in advance. “The inflation figures tell that story. Two years ago, annual inflation had a six in front of it and was rising. Today, it has a two in front of it and it’s falling.”
He’s choosing the headline rate of inflation as his reference point and celebrating last week’s figure landing back in the RBA’s 2-3% target band, at 2.8%.
But the Reserve Bank governor, Michele Bullock, does not share Albanese’s deadline or demeanour. Her reference point is underlying inflation, which strips out the most volatile inflation sources to give a more realistic picture.
That figure is still outside the target band, at 3.5%. So Bullock is much more sparing with her optimism.
She is acutely mindful of her predecessor Philip Lowe’s loose assurances about when interest rates would start to fall – musings taken much more literally than he apparently intended and which have since proven wildly inaccurate.
“I’m not going to be drawn into another forward guidance,” Bullock said at her news conference on Tuesday after the RBA board kept the official cash rate on hold at 4.35%.
To be willing to move, she said the board would “need to be pretty convinced” that underlying inflation was heading into that target band “with a fair degree of confidence”.
It’s a very careful calculation and timing is everything. Albanese and his government can afford a slight delay, with the Goldilocks result being a cut no later than March and positive sentiment carrying until then. But if the ra-ra doesn’t work or – God forbid – if rates don’t fall, the prime minister’s prospects certainly will.
• This article was amended on 6 November 2024 to give the correct date of the ACCI address; an earlier version mistakenly said it would be delivered on Tuesday night.
