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Hedge Clippings | 23 January 2026December's stronger than expected unemployment rate of 4.1% (down from 4.3% seasonally adjusted) indicated that, in simple terms, the labour market is running hotter than the RBA would ideally like. Demand for workers remains solid, wage pressures are unlikely to fade quickly, and the risk of inflation sticking around for longer stays on the table. If only labour productivity were increasing! For the RBA's first meeting of the new year, due on 2-3rd of February, this makes a near-term rate cut highly unlikely, although it may be a meeting too early to see rates rise. The RBA has been clear that it wants to see convincing evidence that inflation is moving sustainably back to target, and a tight labour market works against that narrative. Based on the unemployment rate, a hold is the base case scenario, with the Bank reinforcing its "higher for longer" stance rather than opening the door to easing. Of course, that could all go out the window when December's monthly CPI figures are released next Wednesday. Expectations are for headline inflation to continue easing, helped by goods disinflation, lower freight costs and softer discretionary spending. However, the real focus will be on the underlying measures, particularly trimmed mean inflation. Consensus is that this will remain sticky, especially in services such as rents, insurance, health and education. Whatever the outcome, an easing is unlikely given the cautionary nature of the RBA's mindset, and particularly after they probably consider they might have jumped the gun when cutting rates to 3.6% last August, following previous cuts in May, and before that in February. The August rate cut led leading economists from the big four banks and others to get overly excited, with AMP's Shane Oliver expecting the RBA to cut further last November, and again in February and May, taking the cash rate to 2.85%. Followers of Hedge Clippings may remember that our regular market experts, Nick Chaplin from Seed Asset Management and Renny Ellis from Arculus, were not only critical of the RBA's August move but also correctly warned against those betting on a further cut in November. When we last spoke to them before Christmas, they were of the view that the RBA's next move could well be up, so we look forward to checking in with them once next week's CPI results are out. For those who think Michele Bullock's gig as RBA Governor is difficult, with calls from economists and homeowners to drop rates, and no doubt with some quiet pressure behind the scenes from Treasury and Jim Chalmers, spare a thought for Jerome Powell. The Fed Chair is facing a criminal investigation (but no charges yet) relating to his congressional testimony about cost overruns at the Federal Reserve's headquarters. Powell claims it is because he won't bend to Trump's bidding to cut rates. We shall watch the outcome with interest. Will the Justice Department chicken out, or continue Trump's bidding? Powell's term as Fed Chair ends on the 15th of May (assuming Donald doesn't re-appoint him), although his term as a board member runs until January 2028. Coincidentally, that is when the next President is due in the White House, assuming Trump doesn't find a way to run again. Tempting though it may be to comment on Donald Trump's other regular and recent pronouncements and activities, there doesn't seem to be much that we could add. If nothing else, he's a media godsend and seemingly insistent on being at the centre of the news. If not, he'll say or do something to make sure he is. Watch this space, but importantly, have a great Australia Day holiday celebration. News | Insights 10k Words | Equitable Investors December 2025 Performance News Bennelong Long Short Equity Fund Seed Funds Management Financial Income Fund Bennelong Twenty20 Australian Equities Fund |
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