When Michele Bullock stepped up to the lectern this week to start the Reserve Bank of Australia’s first post-meeting press conference, the governor didn’t look like someone who had trouble making herself heard. Gone was the rictus grin and apologetic posture of her predecessor, Philip Lowe – her tone was confident and clear, reassuring. This 45-minute live-streamed spectacle of the country’s most powerful financial authority sharing views and the occasional awkward quip with journalists ushered in a new era for the central bank – one of transparency and accountability.
Yet by Bullock’s own account, her struggle to be heard as a young staffer has been an animating force in her drive for reform now. In a speech at the Australian Business Economists annual dinner last November, the newly appointed ninth RBA governor stressed the bank needed a diversity of perspectives, and she was changing a strategy that had failed for years. Instead of simply pushing junior staff to speak up, to challenge more senior staff – something she had found difficult to do herself – she said the bank was investing in training and support for leaders, including executives, to be more open and inclusive. “It’s going to be a challenge for some leaders, because they’re going to have to learn to actively listen and that’s not the way that some people have come through the organisation,” she said.
Her words may have been aimed at the doubters who say Bullock, as someone who’s spent the vast bulk of their career at the RBA, may not be best equipped to reform it. And reform is urgent, according to the review commissioned by Treasurer Jim Chalmers – the first in decades – which came up with 51 measures to make the bank “fit for the future”. Among them are expanded and more detailed forecasts, reducing the number of annual meetings from 11 to eight, and holding them over two days to allow for deeper deliberation. Other recommendations, which require amendments to the Reserve Bank Act, are expected later this year, such as the call to split the board into two: one for monetary policy and one for governance. Bullock’s colleagues on the policy board will have their own public speaking duties, to encourage more debate.
Justin Wolfers, who was at the RBA for three years before moving to the United States, where he is now a professor at the University of Michigan’s Gerald R. Ford School of Public Policy, says: “Michele is an insider’s insider – she knows the institution well. That is at once a strength and a weakness. The strength is she knows exactly on which floor the gold bars are and she knows where cheque cashing is and she understands the financial plumbing of Australia better than anyone. But if what you want to do is modernise an institution that’s had no willingness to modernise, you need a little bit of Nixon going to China.”
Wolfers hopes recommendations from the review will bring the RBA – “an institution that’s historically been insular, arrogant and not particularly answerable” – into better alignment with international practice.
“So the American [Federal Reserve] system is insane: 12 regional feds around the country, each with their own research staff, each as large as the RBA… but what you have is competition in the marketplace for ideas, and that’s what the RBA has lacked.”
More ideas should make for better decision-making, which many would say is needed following recent failures such as the bank’s slow action on inflation in the wake of the Covid-19 pandemic. Philip Lowe’s statement in 2021 that the conditions for higher interest rates were unlikely to be met until 2024, which was widely and incorrectly interpreted as a promise, was arguably his undoing. In May 2022 he was forced to embark on the most aggressive campaign of interest rate hikes since the 1990s. His seven-year term was not renewed.
To reporters this week, Bullock glossed over that mistaken guidance, reminding her audience of the “once in a lifetime” circumstances of the pandemic. Nor was there any repeat of the views attributed to the then deputy governor in The Australian Financial Review in June last year, that unemployment may need to rise to 4.5 per cent – it’s 3.9 per cent now – to return inflation to the central bank’s target range of 2-3 per cent. In fact, one of the few questions that seemed to irk Bullock on Tuesday was about where the bank saw full employment, to which she responded that “people can get a little too focused on individual specific numbers; it’s a lot more judgement than that”.
The governor is said to be welcoming of guidance, but with good instincts on how to connect with her audience. Late last year she created the new role of chief communications officer, appointing Sally Cray, a former private secretary to Malcolm Turnbull.
“She’s navigating financial markets, she’s navigating financial media, she’s navigating everyday press,” says Barrenjoey chief economist Jo Masters. “Some of the questions had less economics – I don’t know how to politely say it: they were surprising. I think over time it would be good if those questions could be less about the sensational headlines and more about the probing of where we’re headed.”
The most pressing questions, however, are the ones that can’t be answered yet. The review demanded more accountability from the bank, asking that the governor and board members explain decisions not just to other bankers and politicians but also to the public. At this point, two years into a cost-of-living crisis in which the price of groceries has risen 20 per cent, most people just want to know what happens next. Will the RBA raise rates again or cut them? Are they likely before long to lose their job to a recession? Michele Bullock, with the central bank’s credibility to protect, isn’t taking a tilt at any of these.
“The communications task is difficult because you can’t give away too much,” says Cherelle Murphy, chief economist at EY Oceania and a former research analyst at the RBA. “You’ve got to keep enough mystery in what you’re doing to give yourself flexibility, because only by doing so can you genuinely stick to your word. And sticking to your word is really quite crucial. We saw when Lowe didn’t, he paid the price.
“They’re not trying to be difficult or underhanded or anything like that. It’s genuinely they don’t know.”
People who know Bullock speak of a formidably intelligent woman who is serious about public service. “She’s a genuinely decent human being,” says Climate Council economist Nicki Hutley. “She’s what I would call an old-school public servant who’s really dedicated to their job and their profession and genuinely wants to do the best she can – she’s not there because of the title, she’s there because she wants to do it right and make a difference.”
Bullock has a lot of opportunity to do that. As Hutley points out, climate change is a challenge the RBA is yet to properly factor into its thinking. And the search is on for ways to take the focus of monetary policy off inflation targeting – work that former RBA board member Warwick McKibbin is undertaking with the European Central Bank.
More immediately, there’s the risk that the latest downgraded growth forecasts and drop-off in household consumption could lead to a deeper downturn. That’s the view of the markets and bank chief economists who stuck to their forecast for two rate cuts this year, despite the RBA’s inflation talk on Tuesday. Among them is the central bank’s former assistant governor Luci Ellis, who joined Westpac last year.
As for the diversity of views at the RBA, Justin Wolfers noted some of the high schools that Australia’s top economists attended are no longer even teaching economics. His former boss at the RBA, economist Jacqui Dwyer, has written about this and oversaw a study by staffers Tanya Livermore and Mike Major in 2020, showing economics is now taught in less than a third of public schools and only about half of private schools. Moreover, while in the early 1990s the tally of girls and boys learning economics at school was roughly equal, boys now outnumber girls about two to one.
To achieve the diversity of views Bullock seeks, the entire profession must be made “fit for the future”.
This article was first published in the print edition of The Saturday Paper on February 10, 2024 as "Reserves of steel".
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