I'd nuance the argument of whether the RBA's commitment to low rates was a state-based or time-based. I'd say it was probability-based. They not only said they'd raise rates if wages rose, they said rising wages were unlikely. Difference between getting in a car with someone who points to the wipers and says, I'll turn these on if it starts raining, and getting in a car with a professional meteorologist who points at them and says, i pretty much guarantee I won't be using these bad boys today!
They leveraged their credibility to make people believe a rate hike wasn't coming. That leverage drew on public belief they understand some of the relevant dynamics in the global economy and it blew up. So i'd add another dimension to the RBA's credibility: intellectual. That dimension is diminished.
We can believe they are committed to fighting inflation, but doubt their ability to see the enemy coming. It means all future state-based commitments and forecasts will be viewed more skeptically, including, crucially, their forecast that suggest inflation will be back in range soon. In that way it could marginally increase the chance ofun-anchored expectations.
I'd nuance the argument of whether the RBA's commitment to low rates was a state-based or time-based. I'd say it was probability-based. They not only said they'd raise rates if wages rose, they said rising wages were unlikely. Difference between getting in a car with someone who points to the wipers and says, I'll turn these on if it starts raining, and getting in a car with a professional meteorologist who points at them and says, i pretty much guarantee I won't be using these bad boys today!
They leveraged their credibility to make people believe a rate hike wasn't coming. That leverage drew on public belief they understand some of the relevant dynamics in the global economy and it blew up. So i'd add another dimension to the RBA's credibility: intellectual. That dimension is diminished.
We can believe they are committed to fighting inflation, but doubt their ability to see the enemy coming. It means all future state-based commitments and forecasts will be viewed more skeptically, including, crucially, their forecast that suggest inflation will be back in range soon. In that way it could marginally increase the chance ofun-anchored expectations.