RBA is copying the Fed as Michael Knox forecast

In my previous post, I discussed my latest podcast chat with Morgans Chief Economist Michael Knox who forecast the RBA would today increase the cash rate to 0.85%, as it did. As Michael noted, the RBA has been copying the US Federal Reserve (with a slight lag now) since late 2020. See the chart below comparing the RBA’s overnight cash rate target with the US Effective Federal Funds Rate (currently 0.83%). One reason this is the case is the RBA is wanting to avoid a significant depreciation of the currency which would contribute to inflation through higher prices of imported goods (see my 7 May post Economic update: interest rates, monetary policy, fiscal policy, and coal prices).

The RBA’s cash rate target is tracking the US Effective Federal Funds Rate managed by the US Federal Reserve.

From what I can tell, Michael was the only market economist who forecast a 50 basis points increase in the cash rate to 0.85%, so he’s definitely going into the Economic Forecasting Hall of Fame for this successful prediction. Take a bow Michael Knox. If you’re a QEW reader and you’re not following Michael’s commentary already, you should consider either following his podcast or his YouTube videos on the Morgans channel.

Please feel free to comment below. Alternatively, you can email comments, questions, suggestions, or hot tips to contact@queenslandeconomywatch.com. Also please check out my Economics Explored podcast, which has a new episode each week. 

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