The Great Rate Cut Obsession: Why We Need to Stop Banking on Lower Interest Rates
The October unemployment figures dropped this week, and predictably, the finance forums went into meltdown mode. The headline number came in at 4.4%, with the seasonally adjusted figure at 4.3%. Markets wobbled, someone joked it was barely “a light after dinner fart” (which, honestly, is the most Australian market commentary I’ve seen in ages), and within minutes, the usual chorus began: “RIP rate cuts.”
Here’s the thing that’s been getting under my skin lately – we’ve collectively become obsessed with interest rate cuts. Not just interested, not just hopeful, but genuinely dependent on them happening. It’s like we’ve built our entire economic psychology around the Reserve Bank coming to our rescue, and frankly, it’s a bit concerning.
Looking at the actual data, full-time employment increased by 55,300 positions in October. That’s genuinely good news! Fifty-five thousand people got full-time work right before Christmas. The participation rate held steady at 67%, and underemployment dropped to 5.7%. These are the kinds of numbers that, in any normal economic conversation, we’d be celebrating. But instead, the immediate reaction was panic about what it means for mortgage holders.
Someone on the forums put it perfectly when they said the economy is “perfectly fine” and there was never really a case for rate cuts anyway. And you know what? They’re right. Our unemployment rate is sitting at 4.3% – that’s basically full employment by historical standards. We’re not in crisis mode, despite what the daily news cycle might have you believe.
The disconnect I’m seeing is fascinating and a bit troubling. We’ve got people who took on massive mortgages at rock-bottom interest rates genuinely believing that those rates would not only stay low but actually go lower. The serviceability assessments exist for a reason – banks are supposed to check whether you can afford repayments at 3% above current rates. Yet here we are, with first home buyers using the 5% deposit scheme apparently banking on rate cuts just to stay afloat.
Let me be clear: I’m sympathetic to people struggling with mortgage repayments. I really am. But there’s something deeply wrong with an economy where we’ve convinced ourselves that 4.35% interest rates – which are historically quite reasonable – represent some kind of crisis requiring emergency intervention. My parents bought their first house in the early 1980s at interest rates that would make your eyes water. I’m not saying we should aspire to those conditions, but perspective matters.
The other elephant in the room is the composition of our current employment growth. There’s a legitimate question about how many of these jobs are being propped up by government spending, particularly through schemes like the NDIS. Now, I’m not going to join the pile-on against NDIS jobs – providing support and care is real work that creates real value. But we do need to acknowledge that when a significant chunk of employment growth is being driven by government expenditure rather than organic private sector demand, it tells us something about the underlying health of the economy.
The reality is that the Reserve Bank is stuck. They can’t cut rates when unemployment is this low without risking inflation taking off again. But they’re also reluctant to raise them when economic growth is fairly anaemic and there are genuine pockets of stress in the economy. So they’re going to do what central banks do best when they’re uncertain – absolutely nothing. The cash rate is going to sit where it is for months, possibly longer, while everyone complains about it.
What frustrates me most is this learned helplessness we seem to have developed. We’ve outsourced our economic wellbeing to the RBA’s monthly decisions, as if tweaking the cash rate by 25 basis points is going to solve structural problems in housing affordability, wage stagnation, and productivity growth. It won’t. Those are much bigger issues that require actual policy reform, not just cheaper money.
The path forward isn’t rate cuts arriving to save us all. It’s accepting that interest rates at current levels are actually pretty normal, that unemployment at 4.3% is genuinely good, and that maybe – just maybe – if you can’t afford your mortgage at current rates, the problem isn’t the Reserve Bank being too hawkish, it’s that the property was overpriced in the first place.
I know that’s not what people want to hear, especially with Christmas approaching and cost of living pressures biting. But we need to build our financial plans on reality, not hope. Hope isn’t a strategy, as someone wisely noted in the discussions I saw. The sooner we accept that rates are likely to stay where they are for quite some time, the sooner we can focus on what we can actually control – our spending, our budgeting, and our long-term financial resilience.
The good news is that 55,000 more people have full-time work this month. That’s something worth focusing on. It means more households with stable income, more people contributing to the economy, and more resilience overall. Maybe instead of obsessing over what the RBA might do next quarter, we should be asking how we can make sure that employment growth continues and spreads across all sectors.
The economy isn’t perfect, but it’s not broken either. Sometimes the best thing we can do is stop waiting for rescue and start adapting to the reality we’re actually living in.