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Mark Bouris 🔥 Is This The Rate Rise That Stops The Nation, or The Recession We Had To Have?
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Overview
Mark Bouris and his guest (Tommy) discuss Australia’s latest Reserve Bank of Australia (RBA) rate rise on 7 Nov 2023. They debate whether the increase is necessary and whether it risks pushing the economy toward the kind of recession many Australians believe was “required” to control inflation.
1) Did the RBA need to raise rates?
Mark argues the RBA is taking a forward-looking approach: it expects inflation will not return to its preferred range soon enough (citing forecasts running into 2024 and potentially 2025), so it raises rates to force earlier improvement.
However, he worries the timing may be too aggressive because:
- Inflation appears to have been easing for multiple quarters
- Unemployment is moving in the direction the RBA wants
Mark’s remaining concern is that disinflation could be slower than the RBA wants, but he argues that alone doesn’t justify another hike so soon.
2) “The risk is one more rise” — could it stop the nation / cause a recession?
Both speakers suggest the latest hike could be the extra step that tips households and the housing market, potentially becoming:
- “the rate rise that stops the nation” (Mark’s wording), or
- the recession needed to correct inflation (evoking a Paul Keating comparison)
They also stress the lagged effect of rate hikes:
- People initially adapted (e.g., via redraws and cash buffers)
- Over time, the impact is increasingly showing in real-life outcomes, especially for borrowers under stress
3) Evidence they cite that conditions are improving (or not worsening)
Tommy and Mark point to indicators they believe argue against another rate rise, including:
- Inflation falling for several quarters, though possibly not fast enough
- Unemployment ticking up, which the RBA wants
- A mixed consumer picture:
- retail activity up somewhat
- consumer confidence down
- job ads down sharply
- mortgage affordability deteriorating
- A comparison to the US, where Jerome Powell recently signaled the Fed would “wait and see” and hold rates
4) Why rates may be harming the wrong group (fairness / distribution)
A major theme is distributional unfairness.
They argue:
- Services inflation (including rents, travel, accommodation, restaurants) is driving part of inflation
- But interest rates hit mortgage holders most directly
They describe a wealth-transfer dynamic:
- Mortgage holders (especially newer or more leveraged borrowers) face higher repayments and reduced spending
- People without mortgages (or with low mortgages and/or cash savings) may be able to keep spending and travel even as inflation persists
Their conclusion: monetary policy may be punishing the most financially constrained cohort, rather than reducing inflation evenly.
5) Housing supply and immigration worsen the picture (rates alone can’t solve it)
They argue rate pressure is being reinforced by structural housing factors:
- Low new housing supply
- Developers reportedly aren’t building enough due to broken feasibility
- Construction inputs are up, while profit margins and financing costs become harder to support
- Pre-sales and approvals are difficult
- Migration / population growth
- Population growth adds demand pressure
- They suggest the country may be seeing hundreds of thousands more arrivals, making it harder for rents and prices to cool
Net claim: even if rates slow borrowing, limited supply keeps upward pressure on rents and housing-related services, potentially undermining disinflation.
6) They question the inflation target and underlying assumptions
Mark challenges whether the long-standing 2–3% inflation target remains appropriate given structural changes, including:
- Different mortgage penetration now versus earlier decades
- A prolonged period of rate cuts before 2022, which may have led households to pay down principal and become less sensitive
- A changed environment:
- stronger demand pressure from population growth
- weaker supply dynamics
They suggest the RBA may be “treating” inflation using interest rates without testing whether the cure is proportionate to the problem.
7) What they think should happen instead: targeted fiscal support for mortgage stress
They argue the response shouldn’t rely on interest rates alone.
Mark’s proposed fix is that government (fiscal policy) should relieve households under the most pressure, such as:
- targeted interest rebates/subsidies
- support for mortgage holders and lower-to-middle income groups
They note the political reluctance to do this, because it could be framed as “big spending,” but argue it’s necessary since monetary policy is “inadequate” on its own.
8) Should there be another rate rise in December?
Tommy says another hike in December is historically unpopular because:
- it affects retail/consumer sentiment
He also notes November has limited major data releases, meaning the next decisive data could be late January.
The RBA is portrayed as likely to wait for unemployment/inflation/growth to meet thresholds, but the speakers remain concerned the path could still lead to further tightening if targets aren’t met.
9) Broader commentary: “two worlds” and public division
In closing discussion, they broaden to the social impact of policy:
- They argue the policy outcome is increasing the divide between:
- those benefiting from higher asset values and cash stability
- those facing higher costs and debt stress
- They link this to rising inequality measures
- They describe Australia as becoming “two different worlds,” with people feeling excluded from policy debate
Presenters / Contributors
- Mark Bouris
- Tommy (host/guest referred to as Tommy throughout)
- Paul Keating (mentioned via comparison)
- Jerome Powell (mentioned via comparison)
- Ross Gittens, Alan Cola, Steve gulus (mentioned as having said no rate rise was needed)
- Andrew Chang / Mark referencing “Charmers” (Chalmers mentioned via “Charmers” comments about rate rises)