The Reserve Bank’s second rate cut in three months has landed with mixed reactions—a muted cheer from mortgage holders, a cautious nod from economists, and a weary shrug from renters. The cash rate now sits at 3.85%, still uncomfortably high by past standards, but markets are bracing for more cuts as global pressures mount. That pressure may intensify. Oil priced in yen spiked after reports that Israel could strike Iranian nuclear facilities. At the same time, Japan’s 40-year bond yield surged. The episode jolted traders out of their rate-cut optimism and back into risk-off mode. For a small, open economy like Australia, the whiplash is real—and there’s little protection when geopolitics turns volatile.
For Jim Chalmers, it’s a moment that demands balance: “It’s very welcome relief for millions of Australians with a mortgage,” the Treasurer told ABC’s AM program, “but we know that there’s still a lot of uncertainty in the global economy… and people are still under pressure.”
The government’s response continues to lean on a trifecta of policy tools—tax cuts, energy rebates and wage growth—all aimed at softening the blow of persistent inflation while keeping demand afloat. “The main game here,” Chalmers explained, “is to continue to put that downward pressure on inflation, to continue to get wages to grow, to continue to keep unemployment low.” And, evidently, to outlast global headwinds.
Those headwinds are turning. The United States is again flirting with the kind of trade protectionism that economists hoped had been left in the previous decade. The reimposition of tariffs under Donald Trump’s renewed economic nationalism has already prompted Moody’s to downgrade the US credit rating. The spillover effects are being felt from Frankfurt to Fremantle.
“We’ve made the point repeatedly that these tariffs are a bad idea,” Chalmers said bluntly. “They risk higher inflation in the world and slower growth.” Australia, he added, is “better placed and better prepared than most countries… but we’ve got a lot of skin in the game.”
The Reserve Bank agrees. At its May meeting, the Board considered a 50 basis point rate cut—what traders have dubbed a “jumbo” option—before opting for a smaller 25-point easing. The fact that Governor Michele Bullock floated the larger cut at all sent shockwaves through the bond market. Yields collapsed as traders scrambled to price in the possibility of two or even three more cuts by the end of the year.
“Bullock shocks market with ‘jumbo’ rate talk,” wrote portfolio manager Christopher Joye, who noted the RBA’s shift towards seeing global trade tensions as disinflationary. Joye’s earlier predictions—that the fallout from tariff wars would push the RBA toward easing—are now looking prescient. “We could be looking at a neutral cash rate near 3.25% by year-end,” he said, suggesting over 60 basis points in potential cuts remain on the table.
Stephen Koukoulas, head of global strategy at TD, said the RBA’s tilt caught many economists off guard. “They’re putting a materially higher weighting on the downside to global growth from the tariffs war than many local economists, which is why so many were blind-sided by the dovishness.”
But the picture on the ground is less cheerful. The federal government’s independent housing adviser has warned that Australia will miss its five-year target of building 1.2 million homes by a margin of 22%. That shortfall, the adviser said, will drive more people into rental accommodation, increase demand for emergency shelter, and worsen homelessness.
“You can’t build homes overnight,” Chalmers said. “We’ve found room for $43 billion of investment in all kinds of housing… this ambitious target will be difficult to meet but not impossible.” He added that the government has “shown a willingness” and insisted that everyone—from states to councils to industry—must pull their weight.
The RBA’s internal operations are undergoing change. New transparency measures, including publishing vote results and hosting public briefings, are being discussed between the Treasury and the central bank. “It’s a wonderful development that Governor Bullock makes herself available after each meeting,” Chalmers said, noting that the broader review of monetary policy is still underway but likely to reinforce such openness.
While households may welcome the prospect of falling mortgage payments, the wider economy isn’t in the clear. Wage gains, while growing, are still being chewed up by costs. And renters, who don’t directly benefit from rate cuts, are left facing escalating rents and limited supply. The tax cuts and rebates might help cushion some of the impact, but they do little to add bricks and mortar.
Chalmers appears determined to maintain a steady line. “Our focus is on continuing to provide the stable, methodical, considered, responsible government,” he said, distancing Labor from the Coalition’s internal troubles.
That message—stability in uncertain times—is one the government is keen to press. But with global trade tensions rising and fresh war chatter in the mix, rate cuts won’t build houses or shield renters. They won’t tame inflation if oil prices and tariffs spiral either. Australians may welcome the reprieve, but the warning lights are still blinking.
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