Reserve Bank warns inflation fight may require higher unemployment in Australia

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RBA warns inflation may require job losses

Highlights

RBA deputy governor Andrew Hauser warns Australia's labour market remains slightly tighter than trend, with unemployment forecast to rise from 4.7% to 5.1% by December 2028 to curb inflation.
The RBA acknowledges an economic trade-off where achieving lower inflation may require higher unemployment, intensifying scrutiny of its dual mandate.
By raising rates slower than other countries in 2022–2023, the RBA allowed inflation to linger longer to protect employment, heightening credibility challenges around full employment definitions.

RBA mandate and labour market outlook

As reported by ABC News, Reserve Bank of Australia deputy governor Andrew Hauser says the bank sees labour market conditions as still slightly tighter than trend, implying employment needs to become less tight to help slow inflation.

In remarks revisited from his recent Sir Leslie Melville Lecture, Hauser links the bank's inflation strategy to public trust, arguing that if households believe the RBA will do what is needed to return inflation to target, that belief shapes spending decisions and supports disinflation. He also addresses the bank's obligation to pursue full employment, a concept that he presents as something inferred from a range of indicators rather than directly observed.

The article highlights the tension inside that definition. While earlier generations often associated full employment with far lower joblessness and a labour market dominated by stable full-time work, the modern policy framework treats full employment as the level of unemployment consistent with balanced demand and supply, steady wages and non-accelerating inflation.

The RBA's current assessment is that a majority of labour market indicators remain close to, or a little tighter than, estimated trend levels. With unemployment now at 4.7 per cent, the bank forecasts the rate rises to 5.1 per cent by December 2028 as part of the path to lower inflation.

Policy trade-offs and public scrutiny

That outlook underscores the economic trade-off at the centre of monetary policy, because lower inflation across the economy can come at the cost of job losses concentrated among a smaller group of workers. Hauser says this tension has been a live issue for policymakers, especially after the RBA chose in 2022 and 2023 to raise interest rates by less than some other countries, allowing inflation to take longer to ease in order to preserve more of the employment gains that followed COVID.

His comments frame inflation as a burden felt broadly across households, while unemployment falls directly on those who lose work and those close to them. The article argues that this difference helps explain why public pressure can build for faster rate increases even when tighter policy risks pushing more people out of jobs.

More broadly, the discussion points to a credibility challenge for the RBA. Because full employment is no longer a fixed or easily observable benchmark, the bank faces harder questions about how the public can judge whether it is meeting that side of its mandate while it continues to prioritise the return of inflation to target.

We have also looked at Fed communication strategy debates over how policymakers’ public remarks shape market expectations for rate moves.

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