Help Found? Australia Hires Its New Central Bank Head

Wanted: Experienced economist or policymaker to head major central bank. Must continue inflation fight without causing a recession. Successful candidate will also oversee the largest operational transformation in decades. Regular press conferences and interviews required, in which you use many words to say exactly nothing. Or, at least, nothing that indicates what you may do. Yearly trips to Jackson Hole, Wyoming possible but not guaranteed.

If you are wondering who would take this post, we have an answer! Michele Bullock, who will replace Philip Lowe as the Reserve Bank of Australia’s Governor in September. Lowe, whom Prime Minister Anthony Albanese chose not to reappoint for a second seven-year stint, has overseen the RBA’s on-again-off-again rate hikes and changing forward guidance that have kept observers guessing all year. Not only will Bullock seemingly continue this campaign, but she will also be responsible for implementing the recommendations stemming from an official review earlier this year. Observers mostly see her as a continuity pick, as she is an RBA lifer and currently serves as Deputy Governor. Perhaps, but we don’t think this makes monetary policy predictable.

Bullock has served on the RBA’s policymaking board for 15 months, during which she has ridden shotgun on Lowe’s tightening campaign. It reminds us of when former President Barack Obama tapped Janet Yellen to succeed outgoing Fed head Ben Bernanke, promoting her from a regular board position. Then, too, people presumed she was a stable continuity pick, and from outward appearances she picked up right where Bernanke left off. But she also inherited most of the Federal Open Market Committee members, keeping the groupthink intact. Bullock won’t: As per the aforementioned official review’s recommendations, the RBA is about to form a dedicated monetary policy board (MPB). Until now, the RBA board has overseen both monetary policy and overall corporate governance, stretching it rather thin. These functions will now split in two. One committee will oversee the currency and governance matters, while the other will set monetary policy.

And who this board will be is mostly a mystery. It will include Bullock, whoever succeeds her as Deputy Governor, and Treasurer Jim Chalmers—plus six external members with expertise in “macroeconomics, the financial system, labour markets, or the supply side of the economy.”^[i] Most observers presume this means the MPB will need six new members, given the old board’s external members tend to be from the business community and, the review hints, simply vote for what the Governor tells them to. The RBA review recommends the MPB should be “able to robustly challenge the views of others and bring an independent perspective.”^[ii] The hiring process isn’t set yet, but the review says the RBA should advertise the positions, with the Treasury Secretary, RBA Governor and an unspecified third party reviewing the submissions and recommending candidates to the Treasurer. So in addition to steering monetary policy, Bullock will have to help recruit and hire the committee of experts whose job will be to challenge her. Sounds fun, huh?

In addition to this, she will have to hold regular press conferences after each monetary policy meeting. The meetings will also be much longer, giving the MPB more time to study the data and deliberate. Perhaps recognizing this is a total grind, the board will cut its yearly meetings from 11 to 8, putting it more in line with the Fed and Bank of England (BoE). A small administrative tweak might also ease some of the pressure: The monetary policy statements will now be signed by the MPB, not the Governor, officially shifting responsibility from the head to the committee. This addresses one of Lowe’s long-running gripes, but we daresay commentary will still use the Governor’s name as shorthand—as happens with the Fed, BoE and ECB.

In short: If the RBA is about to get brand new monetary policymakers, and we have no idea who they will be, then it stands to reason no one can know what they will do. Not how they will interpret data. Not which biases they will bring to the table. About all we know for now is that Albanese saw off attempts to politicize the new committee or give Parliament veto power over rate hikes, which is a plus. We will monitor this process as it unfolds, and we will continue keeping an eye on the RBA’s rate moves as well. But those will likely remain as unpredictable as ever.