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Fear & Greed, Fear and Greed

This is Fear and Greed – The Week Ahead, where Sean Aylmer and Stephen Koukoulas discuss the major events, reports and releases that provide insight into the economy this week (with a look back at the events of last week too).

Find out more: https://fearandgreed.com.au

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Sean Aylmer: Welcome to Fear and Greed – The Week Ahead. I’m Sean Aylmer, and as

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Sean Aylmer: always at this time on a Monday morning, I’m joined

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Sean Aylmer: by economist Stephen Koukoulas. You’ll find him at thekouk. com, T- H- E- K- O- U-

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Sean Aylmer: K dot com, and on X using the handle @ TheKouk.

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Sean Aylmer: Stephen, good morning. Have you always been known as The

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Sean Aylmer: Kouk? I mean, I suppose growing up at high school

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Sean Aylmer: you would’ve been Kouk or Kouky, or something.

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Stephen Koukoulas: Yeah. Yes. All of that. I’ve been called worse, but The Kouk is actually quite

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Stephen Koukoulas: good because it sort of characterizes my approach to economics.

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Stephen Koukoulas: You know? Don’t just have the consensus hugging view on

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Stephen Koukoulas: things, go out there a bit. Call it as you

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Stephen Koukoulas: see it, and that’s how you sort of get an interesting view on

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Stephen Koukoulas: the economy, because we know the consensus is often wrong.

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Stephen Koukoulas: But, anyway.

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Sean Aylmer: So true. Big week coming up, but let’s just check

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Sean Aylmer: in with what happened last week. The big one, of

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Sean Aylmer: course, was the December quarter CPI.

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Stephen Koukoulas: Huge news, and it came in under market expectations. More

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Stephen Koukoulas: important than under market expectations, it was under what the

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Stephen Koukoulas: Reserve Bank put in their November 2023 statement on monetary

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Stephen Koukoulas: policy. That was the quarter, or the statement, that they

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Stephen Koukoulas: revised, upped their inflation outlook. Remember at the time, too,

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Stephen Koukoulas: that was when the Gaza- Israel conflict escalated. Oil price

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Stephen Koukoulas: shot to $ 95 a barrel. There was some fear that

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Stephen Koukoulas: inflation was going to be resilient. The Reserve Bank, I

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Stephen Koukoulas: don’t want to be too critical, but they saw that.

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Stephen Koukoulas: We had a strong employment number that particular month, they

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Stephen Koukoulas: hiked.
Fast- forward to the inflation outcome. It came in at 0.

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Stephen Koukoulas: 6 for the quarter. So if you annualize that, so

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Stephen Koukoulas: roughly multiply that by four, you’re getting 2.5%. So, that

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Stephen Koukoulas: momentum down, down, down on the quarterly inflation ratings. If

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Stephen Koukoulas: it continues, and it probably will, means that we’re going

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Stephen Koukoulas: to be within the RBA target band during the course

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Stephen Koukoulas: of 2024. So that low inflation rating, including on the

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Stephen Koukoulas: underlying measures, the trim main measures, are really good news

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Stephen Koukoulas: that their inflation problem… Well, yeah. Do we do a George

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Stephen Koukoulas: W. Bush and declare victory? We’re almost there, we’re almost there.

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Sean Aylmer: Yes. So I mean, just quickly on that. Jerome Powell,

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Sean Aylmer: the US Federal Chair last week, also, same sort of

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Sean Aylmer: deal, the same situation there, but he didn’t declare victory.

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Sean Aylmer: In fact, he kind of-

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Stephen Koukoulas: Yeah.

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Sean Aylmer: … pointed out that, yeah, it’s still too high.

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Stephen Koukoulas: He was quite explicit saying, ” Look, we’re really happy with

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Stephen Koukoulas: the way the inflation trajectory is going,” that it’s sort

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Stephen Koukoulas: of come down nicely. The economy’s definitely been more resilient than

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Stephen Koukoulas: they, and I think just about every economist, thought during

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Stephen Koukoulas: 2023. So they’re sort of saying that, ” Look, we’re pretty

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Stephen Koukoulas: happy the momentum on the monthly reads on the inflation,

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Stephen Koukoulas: the core inflation, and their…” What is the household expenditure

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Stephen Koukoulas: index. They’re all-

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Sean Aylmer: Yeah, yeah.

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Stephen Koukoulas: … coming down towards the target. He’s sort of saying that, ”

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Stephen Koukoulas: Look, we’re happy, but we want confirmation.” Yeah. We’ve all

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Stephen Koukoulas: been around long enough to see in economics occasionally there’s

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Stephen Koukoulas: a blip, but does it get sustained? The blips can

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Stephen Koukoulas: often unwind very quickly. So the US Fed is sort

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Stephen Koukoulas: of saying, ” We want another couple of months, at least,

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Stephen Koukoulas: of confirmation before we’re going to cut rates.” So, he

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Stephen Koukoulas: said the next move is probably down. There’s no more

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Stephen Koukoulas: rate hikes, but not yet. Don’t get carried away.

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Sean Aylmer: Okay. Big week this week. We have the Reserve bank

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Sean Aylmer: coming out tomorrow with their interest rate decision, but it’s

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Sean Aylmer: kind of a new world for the Reserve Bank.

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Stephen Koukoulas: It is. This is part of the reforms that the

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Stephen Koukoulas: government and Michelle Bullock, when she was appointed governor in

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Stephen Koukoulas: September last year, agreed to. That is more transparency, more information,

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Stephen Koukoulas: if you like. So tomorrow, 2: 30 Sydney time, they

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Stephen Koukoulas: will announce the interest rate decision, and it’s an overwhelming

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Stephen Koukoulas: consensus. They’re on haul. Yeah. They’ll be happy with that

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Stephen Koukoulas: inflation outcome. They’re not ready to cut, either. They’re not

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Stephen Koukoulas: going to hike, so that’s the easy call, what they

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Stephen Koukoulas: say’ll be important. But, what’s also happening? They’ll be releasing,

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Stephen Koukoulas: simultaneously, their quarterly statement on monetary policy, which is that

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Stephen Koukoulas: fabulous 60, 70, 80 pages of analysis of the economy, which we

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Stephen Koukoulas: all love to pour over.
And also, really importantly, she’s

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Stephen Koukoulas: giving a press conference. So, there’s a chance to ask

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Stephen Koukoulas: her about her call on rates in November last year,

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Stephen Koukoulas: what she’s saying now. Yeah. How confident is she that

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Stephen Koukoulas: that inflation rate that we saw last week is going

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Stephen Koukoulas: to be confirmed in the following quarters? So, it’s one

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Stephen Koukoulas: of these ones where, ” Hooray.”
The US has been doing

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Stephen Koukoulas: this for quite a while. Here in Australia, we’ve now

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Stephen Koukoulas: got this situation where every meeting the governor will front

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Stephen Koukoulas: the press, not to grill it. It’s not this sort

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Stephen Koukoulas: of gotcha sort of game. It’s not like politics. It’s to

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Stephen Koukoulas: sort of dig into what she’s really thinking about the economy.

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Sean Aylmer: It’ll be interesting because we’ll get to know the governor

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Sean Aylmer: of the Reserve Bank better than we have traditionally. Philip

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Sean Aylmer: Lowe was more of a reserved chap. We probably didn’t

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Sean Aylmer: know him so well. Glenn Stevens was even more reserved.

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Sean Aylmer: Ian Macfarlane was a little more out there. Michele Bullock

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Sean Aylmer: is more of this kind of upfront person. I think

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Sean Aylmer: she’ll say it as she sees it. It’ll be interesting.

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Stephen Koukoulas: She’s already given a couple of speeches, where she’s had Q&

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Stephen Koukoulas: A sessions, since she’s become governor. And, yes. How can

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Stephen Koukoulas: I describe it? Her selling of the message is really

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Stephen Koukoulas: good. It’s not necessarily whether we agree or disagree with it.

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Stephen Koukoulas: The thinking that the RBA has is really transparent with

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Stephen Koukoulas: her. The conversation about… Well, even things as obscure as

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Stephen Koukoulas: the use of cash, let alone what’s happening to the

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Stephen Koukoulas: economy, inflation-

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Sean Aylmer: Yeah.

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Stephen Koukoulas: … interest rates. When you ask her a question, she’ll

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Stephen Koukoulas: answer it. She’ll sort of outline the pros and cons

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Stephen Koukoulas: rather than the… Sort of go back to Alan Greenspan, ”

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Stephen Koukoulas: If you can understand what I’m saying, I must’ve misspoken.”

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Stephen Koukoulas: So, she actually tries to put the context into everyday

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Stephen Koukoulas: language. That’s a really good thing because that transparency issue

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Stephen Koukoulas: was something that the RBA probably lost the plot a

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Stephen Koukoulas: bit in the last few years, anyway.

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Sean Aylmer: When’s the next meeting after this one? Because I think

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Sean Aylmer: it’s a longer gap. Isn’t it? And, does that make

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Sean Aylmer: a difference when they’re thinking about interest rates?

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Stephen Koukoulas: It may. The next one’s on the 17th of March, coincidentally

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Stephen Koukoulas: just a day or two before that next Fed. And

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Stephen Koukoulas: then the one after, that’s the 7th of May. Now,

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Stephen Koukoulas: the way that these are timed are to be approximately

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Stephen Koukoulas: 10 days after key events. Those key events are the

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Stephen Koukoulas: quarterly CPI, obviously, and the quarterly GDP numbers. They used

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Stephen Koukoulas: to meet the day before GDP numbers came out, so

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Stephen Koukoulas: that would’ve been a bit of a problem. So in

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Stephen Koukoulas: the 17th of March meeting, they’ll have had the GDP

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Stephen Koukoulas: numbers come out roughly 10 days before, probably not going

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Stephen Koukoulas: to do anything yet because they don’t have that inflation picture.

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Stephen Koukoulas: But, the 7th of May is where everyone’s getting a

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Stephen Koukoulas: little excited now because they’ll have the March quarter inflation

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Stephen Koukoulas: numbers. They’ll know what the fed’s doing a little more.

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Stephen Koukoulas: Of course, we still get the monthly run of labor

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Stephen Koukoulas: force and retail sales, and these sorts of things so

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Stephen Koukoulas: they’ll have a lot more information. So the current betting,

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Stephen Koukoulas: if we can call it that, is May’s a 50/ 50

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Stephen Koukoulas: proposition. End of June, yeah, that could well be the

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Stephen Koukoulas: one that they deliver.
So, it’s work in progress. There’s

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Stephen Koukoulas: no more rate hikes. I think we’re pretty confident about

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Stephen Koukoulas: that. Now, all the speculation that we’ll be chatting about

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Stephen Koukoulas: for the next few weeks and next few months is, ”

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Stephen Koukoulas: When’s, that first rate cut coming?”

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Sean Aylmer: Yeah. It’s going to be an exciting week. We’re going

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Sean Aylmer: to see a Reserve Bank with personality. Oh, my gosh.

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Sean Aylmer: We haven’t seen that for a long while.

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Stephen Koukoulas: I know. Won’t it be good? And, I think the press are keen to do it.

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Stephen Koukoulas: The press, they’re keen to sort of draw out the

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Stephen Koukoulas: discussion. In the olden days, like last year, you’d see

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Stephen Koukoulas: this statement come out, really beautifully written press release, or

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Stephen Koukoulas: statement on monetary policy. There was something that you wanted to

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Stephen Koukoulas: ask about, and you couldn’t.

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Sean Aylmer: Yeah.

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Stephen Koukoulas: Now, we can.

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Sean Aylmer: Yeah. Well, good luck to Michelle Bullock when she fronts

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Sean Aylmer: the media tomorrow. Stephen, have a great week.

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Stephen Koukoulas: Thank you, Sean. See you.

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Sean Aylmer: That was economist Stephen Koukoulas, better known as The Kouk.

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Sean Aylmer: You can find him at thekouk. com and follow him

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Sean Aylmer: on X using the handle @ TheKouk.
I’m Sean Aylmer, and this is

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Sean Aylmer: Fear and Greed – The Week Ahead.