Why the RBA will cut rates this month

1.  Why the Reserve Bank will cut interest rates in a fortnight 

2.  The benefit of Trump not changing his spots 

3.  Get ready for a law and order, cost-of-living election 

4. Lessons from Amazon

Dr Shane Oliver from AMP knows markets, and he knows economics. So when he describes some of the rhetoric around the US's tariffs on trading partners as 'gobbledygook' - as he did on Fear & Greed this week - it's worth paying attention. 

Listener Joshua asks:

"Where do banks get their money from? When you get a loan, where do they source the cash?"

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Thanks for reading my opinions on the week's biggest stories.

- Sean Aylmer

What to do about interest rates? It is not a political decision. It isn’t a deliberation based on what’s happening in the rest of the world. It’s an economic decision based on the local economy. And the local economy is weak.

The Reserve Bank will cut interest rates in two weeks’ time.

Australia would be in recession but for two reasons. One - ongoing strength in the labour market. People who get sacked are much more likely to find a job in the gig economy – become an Uber driver, for example. Those jobs, however, don’t pay as much.

The second reason for avoiding a recession is government spending at all levels - federal, state and local.

Otherwise the economy is pretty ordinary. Consumer spending is weak, the building sector is a mess, and business confidence and investment has come off.

Headline inflation is well and truly in the Reserve Bank’s two to three per cent target range, and the all-important underlying inflation, which takes out volatile items, is almost there. On an annual basis the underlying rate is 3.2 per cent. If you just take the last quarter and multiply it by four to get an annualised rate, it’s two per cent.

Plus, the Reserve Bank wants to cut interest rates. Most other major central banks have and the RBA doesn’t want to be behind the curve.

When rates started rising overseas, the RBA was too slow to act. As a result, Australians experienced the fastest pick up in interest rates ever. The central bank won’t want to make that mistake again.

Personally, I’m not sure they should cut rates. But they will.

It might have been a shambolic week in global financial markets, thanks to Donald Trump placing tariffs on Mexico and Canada, and then delaying them, but investors learnt plenty from the experience.

Trump is unashamedly transactional and a bully. He threatens friends and foes, but if they fall into line – like Mexico committing 10,000 National Guard troops to the border between the two countries – he backs down.

He is a negotiator and what this week’s events show is that there is seldom a final decision with Trump. There is always room to move.

The American President, like many politicians, just wants to look like he has made a difference. In the case of Mexico, fixing the leaking border and stopping the flow of fentanyl into the USA via the redeployment of 10,000 Mexican troops serves his goal of looking like he is making a difference, even if it might not have any real impact. The photo opportunity is what matters to Trump.

Trump suggesting in the last 24 hours that the USA will continue supporting Ukraine on the basis that the central European country supplies rare earths minerals, which are used in electrification, is another example.

In both cases, the cost of redeploying 10,000 troops and extracting rare earths and sending them to the US is far, far less than a ten per cent tariff and losing a war against Russia. Given what could have been, it is a win for Mexico and Ukraine.

While irksome for countries to look like they are kowtowing to Donald Trump and the USA, it is now clear that everything is up for negotiation. Amid all the uncertainty, that is one thing for certain.

The Amazon business began in 1994 as an online marketplace for books.  It is now an "everything store" and is estimated to employ over 1.5 million people worldwide. They have had to employ, promote, and exit people at scale.  

Andy Jassy succeeded Jeff Bezos as the CEO of Amazon in 2021 and claims to use the organisation's leadership principles every day. So what are they? We've got the first eight this week and read next week’s newsletter for the second eight.

1. "Customer Obsession". Always prioritise the customer by working backwards from their needs.
2. "Ownership". Act as an owner by taking responsibility for long-term value across the company.
3. "Invent and Simplify". Foster innovation and streamline processes to simplify complex challenges.
4. (Leaders) "Are Right, A Lot". Trust your strong judgment while actively seeking diverse perspectives to validate your decisions.
5. "Learn and Be Curious". Continuously pursue learning and explore new possibilities to drive growth.
6. "Hire and Develop the Best". Enhance team performance by recruiting top talent and nurturing their development.
7. "Insist on the Highest Standards". Set and uphold exceptionally high-quality standards in all work and deliverables.
8. "Think Big". Embrace bold, visionary goals that inspire transformative results.

Federal parliament is back in session and judging by the past few days, the upcoming election campaign will have law and order, and the cost-of-living crisis front and centre.

Opposition leader Peter Dutton over the past week has been hammering Prime Minister Anthony Albanese about his stance on antisemitic behaviour, particularly in Sydney. He argues the PM is weak on tracking down the perpetrators, and not close enough to his state colleagues to know what’s going on.

Albanese has been pushing to pass legislation allowing easier access to childcare – an issue the government is confident will win it votes over the Opposition.

What’s changed in 2025, so far, is that the Opposition is not focusing on cost-of-living, as it did for much of last year. Government energy rebates, lower inflation, the prospect of an interest rate cut in two weeks’ time and a slowdown in house price and rental growth, has changed the narrative. Labor is talking about the cost-of-living in 2025, whereas in 2024, it was the Coalition attacking the government on the issue.

Cost-of-living pressures are easing, and Labor argues that voters need to re-elect them to keep momentum going. The incumbents in several national elections across the globe last year – notably the USA – struggled to fight off the cost-of-living pressures.

Maybe Anthony Albanese and Labor might get lucky with the economic cycle matching the political cycle.  

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AND ONE LAST THING...

It's been 22 years since Concorde was retired - which means 22 years since there's a supersonic civilian aircraft took to the skies. But last week this Boom Supersonic XB-1 broke the sound barrier over the Mojave Desert in California, taking a big step towards passengers once again travelling at the speed of sound.

Boom hopes to have the larger Overture airliner in operation by 2029. Because of laws in the US that prevent supersonic flight over land, the jet will fly just under the speed of sound until it reaches the ocean, then accelerate well beyond the sound barrier. The end result? New York to Rome in four hours and forty minutes, instead of eight hours. Pretty cool.