Welcome to Ask Fear and Greed, where we answer questions about business, investing, economics, politics and more. I'm Michael Thompson and hello, Sean Aleman, Michael Sean. Every now and then ask Fear and Greed. It's an opportunity for a listener to get something off their chest. Yes, and Wesley has done this today. He's written to us on LinkedIn, right, and he says he's a little bit cynical. Okay, I'll just preface it with that, Okay. Wesley says, why do we have the RBA? We believe in free markets. The bond market sets interest rates, forecasts are never correct, predictions of wage price spirals never materialize, contradictory statements of we are data driven, we don't see that in our model slash forecast, and finally only reaching their mandate once in a decade of both core and headline inflation in the target range. Why do we have the RBA? I'm guessing Wesley feels a bit better now.

Welcome to Ask Fear and Greed, where we answer questions about business, investing, economics, politics and more. I'm Michael Thompson and hello, Sean Aleman, Michael Sean. Every now and then ask Fear and Greed. It's an opportunity for a listener to get something off their chest. Yes, and Wesley has done this today. He's written to us on LinkedIn, right, and he says he's a little bit cynical. Okay, I'll just preface it with that, Okay. Wesley says, why do we have the RBA? We believe in free markets. The bond market sets interest rates, forecasts are never correct, predictions of wage price spirals never materialize, contradictory statements of we are data driven, we don't see that in our model slash forecast, and finally only reaching their mandate once in a decade of both core and headline inflation in the target range. Why do we have the RBA? I'm guessing Wesley feels a bit better now.

Such cynicism, Wesley, Such cynicism, I mean, it's a good It's an interesting question where he's not one hundred percent right. I don't have the question in front of me, is about who sets interest rates. Bond market set interest rates. So bond markets set interest rate off a benchmark rate, which we know is a cash rate which the Reserve Bank sets. The bond market, particularly Australian government bonds, very much relies on that cash rate, and so the safest investment you can get in the bond market or Australian government bonds, and the next they're called semi so their state government bonds, and then you might have come off bank bonds. Then you go out the yield curve. So in a sense that the bond markets don't set interest rates. But broadly, why do we have an independent central bank history in Australia it was sort of de facto independent by the Hawk government in the early nineteen eighties under deregulation. I think it was ninety six that Pete Coxcello made it form. The reason we have an independent reserve bank is that we don't trust the politicians to do it, okay, So what they do is set interest rates, and the Reserve Bank's goal two things are full employment and price stability. They use interest rates to get full employment, which we're sort of about now, and price stability, which is keep inflation low. If you left that to the government, and we're seeing this in the US, we'll go there in a moment. If you left that to government, politics comes into it. And why One of the great reasons that, I mean, one of the reasons that Australia has had such a great run for decades is the Independent Reserve Bank not really being influenced by politicians about how to run the economy. So they can have long term economic goals. They don't have an electoral cycle. They know they've got to keep employment as strong as you can.

Such cynicism, Wesley, Such cynicism, I mean, it's a good It's an interesting question where he's not one hundred percent right. I don't have the question in front of me, is about who sets interest rates. Bond market set interest rates. So bond markets set interest rate off a benchmark rate, which we know is a cash rate which the Reserve Bank sets. The bond market, particularly Australian government bonds, very much relies on that cash rate, and so the safest investment you can get in the bond market or Australian government bonds, and the next they're called semi so their state government bonds, and then you might have come off bank bonds. Then you go out the yield curve. So in a sense that the bond markets don't set interest rates. But broadly, why do we have an independent central bank history in Australia it was sort of de facto independent by the Hawk government in the early nineteen eighties under deregulation. I think it was ninety six that Pete Coxcello made it form. The reason we have an independent reserve bank is that we don't trust the politicians to do it, okay, So what they do is set interest rates, and the Reserve Bank's goal two things are full employment and price stability. They use interest rates to get full employment, which we're sort of about now, and price stability, which is keep inflation low. If you left that to the government, and we're seeing this in the US, we'll go there in a moment. If you left that to government, politics comes into it. And why One of the great reasons that, I mean, one of the reasons that Australia has had such a great run for decades is the Independent Reserve Bank not really being influenced by politicians about how to run the economy. So they can have long term economic goals. They don't have an electoral cycle. They know they've got to keep employment as strong as you can.

Are you saying that politicians don't necessarily act in the best interests of the long term economy.

Are you saying that politicians don't necessarily act in the best interests of the long term economy.

Shot, surely not. I mean, so all this criticism at the moment from Donald Trump over j Powell the US FED saying he should be cunning interest rates. If Donald Trump was to run the US FED as president, he'd say, cut interestrates. We're going to cut one percent off. Darry about it, and you would have rampant inflation, which would hit US as well. But you'd have rampant inflation in the US that would hit all sorts of other economies. Because Donald Trump wants to supercharge economies. That's fine, But with that comes inflation. So I wouldn't trust Donald Trump to run the Federal Reserve. And it's the same here, I wouldn't trust Anthony Albernezi or Susan Lee to run the Reserve Bank. The Reserve Bank is a sort of professionals, that's what they do for a living. It also gives us a lot of credibility and trust. So when you've got an independent reserve bank, people investing in Australia think, well, they've actually got a monetary policy is set by people who are worried about the economy. You know that, you have the whole separation of powers argument as well, like better accountability. So lots of good reasons for an independent reserve bank.

Shot, surely not. I mean, so all this criticism at the moment from Donald Trump over j Powell the US FED saying he should be cunning interest rates. If Donald Trump was to run the US FED as president, he'd say, cut interestrates. We're going to cut one percent off. Darry about it, and you would have rampant inflation, which would hit US as well. But you'd have rampant inflation in the US that would hit all sorts of other economies. Because Donald Trump wants to supercharge economies. That's fine, But with that comes inflation. So I wouldn't trust Donald Trump to run the Federal Reserve. And it's the same here, I wouldn't trust Anthony Albernezi or Susan Lee to run the Reserve Bank. The Reserve Bank is a sort of professionals, that's what they do for a living. It also gives us a lot of credibility and trust. So when you've got an independent reserve bank, people investing in Australia think, well, they've actually got a monetary policy is set by people who are worried about the economy. You know that, you have the whole separation of powers argument as well, like better accountability. So lots of good reasons for an independent reserve bank.

What about Wesley's comment that forecasts are never correct, That's not necessarily the case. I mean, they can often be fairly wide of where we end up, but it's also subject to conditions that are constantly changing.

What about Wesley's comment that forecasts are never correct, That's not necessarily the case. I mean, they can often be fairly wide of where we end up, but it's also subject to conditions that are constantly changing.

Right, the trend is your friend, Weasiley, The trend is your friend. So what I mean? You know, a forecast gives you a number, but at the end of the day, it's kind of the direction that matters, I think, And so long as it's not wildly wrong. And the Reserve Bank has been wildly wrong at times, and we saw that when they decided to lift interest thrates really quickly a few years back. That's because its forecasts were wildly wrong. But generally they're not wildly wrong.

Right, the trend is your friend, Weasiley, The trend is your friend. So what I mean? You know, a forecast gives you a number, but at the end of the day, it's kind of the direction that matters, I think, And so long as it's not wildly wrong. And the Reserve Bank has been wildly wrong at times, and we saw that when they decided to lift interest thrates really quickly a few years back. That's because its forecasts were wildly wrong. But generally they're not wildly wrong.

Do you think that things like that, the declaration that we wouldn't see interest rate cuts until twenty increases until twenty twenty four at the earliest, do you reckon that has perhaps encouraged this kind of view from people like Wesley. That has damaged the almost the credibility a little the forecast.

Do you think that things like that, the declaration that we wouldn't see interest rate cuts until twenty increases until twenty twenty four at the earliest, do you reckon that has perhaps encouraged this kind of view from people like Wesley. That has damaged the almost the credibility a little the forecast.

It did damage the credibility without a doubt, and not even a little bit a lot, okay, because Reserve Bank got it so wrong. But I think broadly we think the Reserve Bank does a good job in Australia. It sets the economic premise to work under its credibility. It's got long term economic goals. All in all, independent central bank, good thing. Sorry, where you know what?

It did damage the credibility without a doubt, and not even a little bit a lot, okay, because Reserve Bank got it so wrong. But I think broadly we think the Reserve Bank does a good job in Australia. It sets the economic premise to work under its credibility. It's got long term economic goals. All in all, independent central bank, good thing. Sorry, where you know what?

I like Wesley's question?

I like Wesley's question?

I like the question.

I like the question.

Yeah, I mean, and this is a safe place to be cynical. Yes, a very safe place, Wesley. We appreciate a cynical question. We appreciate any question if you want to send one in like Wesley's done. LinkedIn's a great place to do it, Facebook, Instagram, Fear and Greed dot com, tod au, head to our website and send it on through there.

Yeah, I mean, and this is a safe place to be cynical. Yes, a very safe place, Wesley. We appreciate a cynical question. We appreciate any question if you want to send one in like Wesley's done. LinkedIn's a great place to do it, Facebook, Instagram, Fear and Greed dot com, tod au, head to our website and send it on through there.

Thanks Sean, Thank you. Michael.

Thanks Sean, Thank you. Michael.

I'm Michael Thompson and this is asked fair and great

I'm Michael Thompson and this is asked fair and great