Have some people forgotten?

When Philip Lowe's tenure as Reserve Bank governor was winding down last year, he had some things to say about monetary policy.

On numerous occasions, he said there were probably better ways to manage inflation and we should spend time thinking about them.

He raised the point before a parliamentary committee in Canberra. He said under our current system, the burden of inflation control fell very heavily on some sections of the community, and lightly on others.

"It's a big issue, and I was a bit disappointed that the RBA Review didn't tackle it," he told them.

In his final speech to the Anika Foundation, he even floated the idea of giving an independent institution limited powers over new fiscal instruments so it could help to manage inflation alongside the RBA, in ways that would spread the burden of inflation control much more evenly across the community.

"Moving in this direction is not straightforward, but some innovative thinking could help get us to a better place," he said.

"[G]iven the limitations of monetary policy ... you know, what we're doing affects people very unevenly, I think we should aspire to kind of something better."

Now jump to the present.

On Thursday last week, RBA Governor Michele Bullock (who replaced Dr Lowe as governor in September last year) delivered her own speech to the Anika Foundation.

Ms Bullock told her audience that she knew higher rates were contributing to pain for some people at the moment, but the RBA's job was to get inflation lower, because that was also causing pain.

She said the RBA was aware that more Australians than usual were asking for help from community organisations right now, and lower-income borrowers were over-represented in the group of people "really struggling," and some people may have to sell their homes.

And she didn't say those things happily. She was stating facts. This is how things work under the current system, which she inherited.

But on the internet, where Ms Bullock's comments were received with anger by many people, severe criticisms were directed at her, as though she was delighting in the pain people were feeling.

Have we forgotten what Phil Lowe talked about when he was feeling more free to speak his mind at the end of his career?

The environment has changed for monetary policy

Where's the scorn for our major political parties and regulators?

Aren't they responsible for allowing the problems with this system, and the inequities in our housing policies and tax system behind it all, to fester over time?

Tim Hext, the head of government bond strategies at Pendal Group, recently argued that monetary policy was being asked to operate in a very different environment than in the past.

"The Reserve Bank has always acknowledged that cash rates are a blunt instrument, but massive changes in our economic structure in the last decade have made them even blunter," he wrote.

"In fact, monetary policy is now more than ever a wealth redistribution policy within Australia, not just an economic policy."

By "wealth redistribution," he's talking about the way in which wealth is redistributed away from the young and poor, towards the wealthy.

He said among the many issues the RBA Board considered at its meetings, the changing face of monetary policy should occupy its longer-term thinking.

But he wasn't telling the RBA anything it doesn't know.

Last year, Philip Lowe warned that, given the changes occurring in the global economy, it may be difficult to return to a world in which inflation tracks within a very narrow range.

"The increased prevalence of supply shocks, de-globalisation, climate change, the energy transition and shifts in demographics mean either steeper supply curves or more variable supply curves," he said.

Remember, he also thought we should aspire to better and fairer ways of managing inflation.

And Ms Bullock, in the month before she became RBA governor, warned the uncertainty posed by climate change may make it harder for central banks to manage inflation in the future.

Clearly, the RBA has engaged in long-term thinking.

But the RBA doesn't have the power to reform the tax system, or build houses for people, or properly tax the use of our natural resources that our politicians insist on handing to multi-nationals for banana-republic prices.

Its main policy lever is shifting interest rates up and down.

Is it time to go Lowe?

That's not to let the RBA off the hook, either.

Plenty of economists have criticised the RBA for the mistakes it's made in recent years, including its stuff-up with its forward guidance in the lockdown period, and its tardiness in lifting rates once inflation took off.

Why did it take the RBA Board until a few weeks before the federal election in May 2022 to start lifting rates, when headline inflation had already jumped above 5 per cent?

As the graph below shows, the Albanese government came to power at the very start of the rate hiking cycle in 2022, when the RBA Board had just lifted the cash rate target from 0.1 to 0.35 per cent.

Treasurer Jim Chalmers inherited an economy with runaway inflation, and the RBA has since lifted rates another 12 times, to 4.35 per cent, to try to drag inflation back down. 

The RBA's emergency-low interest rates in the pandemic, which it introduced during a period of extreme uncertainty and anxiety about COVID-19, also contributed to our subsequent property price explosion, with terrible social consequences.

But throw in some other things, because it's not like the RBA is the only institution to complain about.

The Morrison government's decision, during the pandemic, to allow Australia's biggest businesses to keep hundreds of millions of dollars in government support they didn't need, while it pushed millions of people back into poverty by withdrawing their financial support, was appalling.

The Albanese government is currently insisting on granting more approvals to mining companies to extract and burn more fossil fuels, as though it won't have consequences for climate change, which the RBA has said it's worried about.

Some economists are also criticising the government for the financial support it's been giving to households recently, arguing that it's making it harder for economists to forecast inflation, and more difficult to bring inflation back down.

It's a mess.

But buried inside all of that, is the question of our policy architecture.

In the past couple of years, there's been a roll-call of experts calling on Australia's political leaders to do something about the unfairness in our tax system, and our housing policies and immigration settings, given how monetary and fiscal policy interact.

What will it take for policymakers to explore alternative ways of doing things, as Phil Lowe suggested, so the burden of inflation control is felt more evenly by the community?