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Peak interest rates approach. Maybe even rate cuts ahead? - featured image

Peak interest rates approach. Maybe even rate cuts ahead?

Are we near the peak of interest rates?

This Macquarie Macro Strategy chart shows the rapid decline in job ads, from SEEK's index:
With housing starts crashing, the peak of the hiking cycle must be getting close....
We still have the inflation figures for the final quarter of 2022 to be reported this week, so one more wave of wild hyperbole to go through, even though the forward-looking indicators are obviously far softer.
The median market forecast is for headline inflation to slow from 1.8 per cent in Q3 to 1.6 per cent in Q4, while the annual pace for the trimmed mean reading appears likely to peak at around 6½ per cent.

Are rate cuts ahead?

Are Interest rates set to fall?
Well...Gareth Aird of CBA sees 50 basis points of interest rate cuts ahead later in the year.
CBA's forecast is predicated upon inflation falling materially faster than Reserve Bank estimates.
Importantly, CBA's wage indicator suggests that wages growth was only 3.4 per cent over the 2022 calendar year.
With immigration now set to roar to record highs, the risks of strong wages growth are now low.
Indeed, the number of unemployed persons seems to have bottomed out from around July 2022.
It's worth remembering that last year CBA saw the terminal cash rate target at just 1.25 per cent, and we have blazed waaayy past that level already.
It would be good news for housing supply, though why we still have a 300 basis points lending assessment buffer is a mystery given that nominal incomes are rising and 3-year yields are under 3 per cent.
The appropriate buffer has been 250 basis points in the ordinary course of events.

About Pete is a Chartered Accountant, Chartered Secretary and has a Financial Planning Diploma. Using a long term approach to building businesses, investing in equities, & owning a portfolio he achieved financial independence at the age of 33. Visit his blog
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