Why Terry McCrann is wrong about me

In his Herald Sun column, Terry McCrann questions my judgement about interest rates. He fails to see the full story.

I'm glad to see Terry McCrann has joined the long list of avid readers of my column. 

Terry McCrann has been one of Australia’s leading economic writers for several decades. Certainly his views on the Reserve Bank of Australia have often been required reading.

Nevertheless, his article today -- about why I am a "twit"-- is a timely reminder that you should never judge a book by its cover or an article by its headline.

McCrann noted today that I wrote an article named (How the RBA got it wrong on rates, June 16) after writing an article last month called (Why the RBA is right on rates, May 20). At first glance there is an obvious incongruity, but that evaporates the moment you remember that journalists rarely write their own headlines.

My headline writers are fantastic -- and creatively hide my inability to come up with clever puns -- but occasionally there’s a title that comes back to bite me on the backside. In my opinion, it is a small price to pay for their excellent work. In that piece, (Why the RBA is right on rates) the headline writers distilled my view that the RBA was right to ignore cries for rates to rise at the last meeting.

If you delve deeper into those two articles -- or indeed many of my other articles -- it should become clear that my opinion has changed very little over the past month.

I’ve had a fairly pessimistic outlook for the Australian economy for some time now, prompted by the imminent collapse in mining investment and pushed slightly lower again as it became clear that household spending was slowing more quickly than commonly expected.

The earlier article was written at a time when many economists expected the RBA’s next move to be up. In maintaining their neutral stance, I stated that the RBA’s more conservative approach was a better way to manage monetary policy. 

Much like McCrann, I am – at times – frustrated by the number of economists or journalists who overreact to a good or bad piece of data. This was most clearly articulated in a piece regarding Australia’s labour market (The truth about unemployment in Australia, April 10).

By comparison, my June piece does advocate for a couple of rate cuts by the end of this year. This is the first time in months that I have firmly stated what I believe the RBA should do to policy in the medium term and it is entirely consistent with dozens of articles I have written this year.

The reality is my thinking has shifted little in recent months. However, with each passing month, the evidence continues to mount that my earlier concerns regarding the Australian economy were indeed warranted.

I held off prescribing a rate cut until I was confident that the evidence had shifted sufficiently towards my assessment of the economy. Until that point I was more than happy that the RBA leave rates unchanged -- and buck calls to raise rates -- until they possessed more information.

My approach to economics has always been to focus on long-term economic developments rather than short-term cyclical movements. I will often spend more time discussing mining investment or an ageing population than I will the RBA’s next meeting.

By comparison, McCrann gives a voice to the RBA’s immediate thinking -- which in the past has proven quite valuable -- but doesn’t necessarily provide insight into the RBA’s medium-term intentions.

There is room for both sets of analysis, and News Corp Australia benefits directly from this. The reader does too.

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