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Hedge Clippings | 06 November 2026
Five hikes, three dissenters and a canary
The Melbourne Cup wasn't the only contest on Tuesday. At the Reserve Bank, six members voted to raise the cash rate and three wanted to leave it alone. The majority won, taking the cash rate to 4.85% with the fifth rise this year. For mortgage holders and small businesses, the result was unwelcome. For anyone wondering what happens next, the three dissenters may be the most interesting part of the decision.
Annual inflation reached 4.3% in September, comfortably ahead of the RBA's 2-3% target range. As for why, it depends on whom you listen to. Jim Chalmers called the Middle East war the main reason for the latest increase in inflation, while acknowledging other pressures. He pointed to slower growth in public demand and rejected the suggestion that the Albanese government's budgets were pushing inflation higher. He also promised more savings in December's budget update. The test will be how much those savings amount to after new spending is counted.
Michele Bullock was more direct about what the Bank can and can't do. Raising rates won't bring down the world oil price. The RBA is tightening because it judges that demand at home is still running ahead of what the economy can supply. Those pressures predated the war, which is why the Bank began lifting rates in February. And in Bullock's arithmetic, public and private demand both count. As for who should do what: "Independence is a two-way street." She won't tell the government how to run the budget, and the government doesn't get to set interest rates.
Fair enough. But independence doesn't absolve Canberra of responsibility for the demand its decisions create. Commonwealth cash payments reached 26.9% of GDP in 2025-26, the highest share since the pandemic, even as the deficit came in smaller than forecast. Chalmers is entitled to point out that public demand grew more slowly. Slower growth and a high level of spending can coexist. Neither figure tells us how many rate rises Canberra is responsible for, but both belong in the discussion.
So what next? The RBA expects headline inflation to peak at 4.5% in the December quarter. It doesn't expect inflation back at the top of the band until late 2027, or at the 2.5% midpoint until around mid-2028. That distinction matters. So does the risk that businesses start setting prices, and workers start negotiating wages, on the assumption that inflation of 3-4% is here to stay.
The three who voted to hold put more weight on falling house prices, rising unemployment and the time it takes for previous increases to work. To households cutting spending and small businesses facing higher financing costs and fewer customers, it may already feel like a recession. The latest quarterly GDP figures don't establish one, and the RBA's central forecast doesn't anticipate one. The risk is that by the time we know what five hikes have done, it will be too late to undo the last one.
Housing is where the slowdown is easiest to see. Cotality's national index fell 1.2% in October, its seventh consecutive monthly decline, with Brisbane down 2.0% and Perth 1.7%. Higher rates were already squeezing borrowing capacity when May's changes to negative gearing and capital gains tax added pressure to investor demand. A cheaper house may help with the deposit, but it's hard to celebrate improved affordability if the bank will lend you less and the repayments still stretch the household budget. For existing owners watching their equity shrink, there's even less reason to cheer. Neither makes for confident consumers.
Meanwhile, American voters handed the Democrats control of both the House and the Senate. What Donald Trump does next on Iran or Ukraine is anyone's guess. Investors had a clearer view on one question: how much they were willing to pay for the AI boom. On Thursday the Nasdaq-100 fell 6.36%, while the broader Nasdaq Composite fell 5.52%. Concerns that newly elected lawmakers and governors might slow data centre approvals helped drive the sell-off, alongside weakness in chip stocks. An election result doesn't cancel a building program, but it can change what investors are prepared to pay for it.
Was Firmus the canary? The Australian data centre operator shelved its proposed $5 billion ASX float last month and turned to private funding. One pulled float doesn't tell us the AI buildout is over. But the RBA is counting on strong data centre investment to support Australian growth while household spending and housing soften. That makes the question rather more relevant than whether we missed out on a float: what happens to the growth forecast if investors stop writing the cheques?
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