US Rate Cuts Shaky as ‘America First’ Ripples Hit Aussie Property

Anticipation Mounts for RBA Decision Amid Global Uncertainty

Speculation is rife within Australian financial markets regarding the Reserve Bank of Australia’s (RBA) upcoming monetary policy decision. Just over a month away from the RBA’s May meeting, analysts are debating whether the central bank will opt for a single or potentially a double interest rate cut, considering the increased volatility in global markets. Current money market pricing suggests a strong expectation of a series of rate cuts over the next few meetings.

US Tariffs: A Potential Catalyst for RBA Action?

The recent introduction of tariffs by the United States has sent shockwaves throughout the global economy. For Australian homeowners and property investors, this presents a complex scenario. While some economists believe these tariffs could prompt the RBA to lower interest rates to stimulate economic growth, mitigating the potential negative impacts of global trade tensions, other analysts caution against overly aggressive easing. The big four banks in Australia have reportedly adjusted their forecasts regarding the timing of the next RBA rate cut, reflecting this uncertainty. The potential impact of any rate cut would likely influence borrowing costs and property valuations across the country.

Much hinges on the March quarter inflation figures, scheduled for release on April 30th. Recent months have seen consumer price inflation decelerate more rapidly than anticipated, with underlying inflation falling within the RBA’s target band of 2-3 per cent. This provides the RBA with some flexibility to adjust monetary policy. The RBA targets this inflation rate to encourage sustainable economic growth. However, external factors, particularly US trade policy, remain a significant concern.

The Trump Factor: Global Market Volatility

The unpredictable nature of US trade policy, under President Trump, is a major source of instability in global financial markets. Rapid shifts in policy, often announced via social media, have created a climate of uncertainty that is impacting investor confidence. This has started to affect Australia’s share market returns, and in turn, many Australians’ superannuation balances have dropped.

The RBA is closely monitoring these developments, recognising that sustained market turmoil could eventually dampen household spending and business investment, impacting the Australian economy. Reduced consumer confidence, influenced by uncertainty, could lead to decreased discretionary spending and investment, ultimately dampening economic activity. However, predicting how quickly and to what extent this instability will impact Australian shores remains a challenge.

Potential for a Liquidity Crisis?

President Trump’s administration appears to be making economic policy decisions with little regard for global stability. A recent example highlighting this unpredictability involved US tariff exemptions. Initially, the White House indicated that certain electronic devices, including smartphones and laptops, would be exempt from tariffs, then, over the weekend, President Trump unexpectedly reversed this decision via social media. The president’s post stated that the previously announced 20% tariff would apply to all imports, thus contradicting the exception of tariffs that have been as high as 140%.

The RBA has consistently emphasised its focus on global economic developments. The recent market turbulence has heightened concerns about a potential global economic slowdown or even a more serious crisis. Some analysts fear that escalating trade tensions could lead to a worldwide recession, potentially impacting Australian exports and economic growth.

RBA’s Cautious Approach Expected

While the arguments for a double rate cut to provide insurance against global headwinds are compelling, the RBA is expected to proceed cautiously. A drastic rate reduction could backfire, spooking households and businesses rather than providing much-needed relief. Furthermore, the RBA may prefer to conserve its policy ammunition, maintaining some flexibility to respond to future economic shocks. Some economists argue that the RBA may also be hesitant to further inflate asset prices, particularly in the property market, which some consider already overvalued.

A Loss of Faith in the US Economy?

The current state of global finance is raising alarm bells amongst experts, as the actions by the U.S. administration have created a self-inflicted wound. Until recent events, the US has long been considered a financially free market and has always served as the global reserve currency. It is the biggest accumulation of capital in the world, and the recent policy changes have been shocking. Trump is correct to highlight the unsustainability of America’s rising budget deficit, but his approach to attacking the external trade deficit has wreaked havoc in the stock market and has spread into the bond and currency markets.

The US was once considered the safe haven for global investors. However, this may no longer be the case. Investors have begun to rethink their US lending strategy as President Trump attempts to fine foreign countries. The market forced Trump to buckle down after driving interest rates up significantly and as bond investors revolted. Due to the size of America’s debt, the interest is the second biggest fiscal burden burden after social security. This year, America is due to refinance around $US7 trillion ($11 trillion) of existing debt, as well as issue a further $US2 trillion in new debt.

China’s Rare Earths Leverage

Adding to the complexity, US bond market yields remain persistently high, and the US dollar is under pressure as global investors diversify away from US debt. The United States has suddenly been relegated in terms of financial stability and trust. China has imposed blanket bans on exports of rare earths to the United States in response to the tariffs. These minerals are essential for microchips, robotics, electronics, defence and artificial intelligence. Should these bans continue, the impact on the Chinese and American economies would be significant, and Australia will feel the fallout.

While the RBA will be taking all of these considerations, don’t expect any rash decisions or moves by the RBA any time soon.

Source: Industry research and analysis.

This article is based on a report from www.abc.net.au titled “As ‘America First’ threatens US dominance, rate cuts loom but don’t bet on a double”. You can find the original article here: https://www.abc.net.au/news/2025-04-15/analysis-verrender-america-first-rate-cuts/105175844