Four Shock Doctrines

The RBA’s hawkish tone in recent months stems from its assessment that demand is currently outstripping supply. It is trying to engineer a period of below-trend growth so that demand comes back into line with supply. How far it thinks it needs to go with that slowdown in turn depends on how fast it thinks Australia can grow without hitting capacity constraints. However, this is one of those situations where you do not know exactly where you are, or how fast you can go before hitting the skids. The data are uncertain, supply capacity can only be estimated not directly observed, and you just have to do the best you can with the available data.