Michael Janda

And once bitten, twice shy.

And we've seen that with the Reserve Bank of Australia, which copped more criticism than most because it was the last

major central bank to respond to that supply shock inflation.

And it copped a lot of criticism from the economics profession, even led to a review in part into the Reserve Bank about it being too slow to react.

And we've seen it be preemptive this time.

The concern would be that, likewise, in the US, there's a limit to how far the Fed can hold off and say this is transitory before they have to say, well, actually, inflation's just getting high and the economy's pretty strong, so we need to raise rates.

And just bringing it back home again, because people might be wondering why you're talking about the US Federal Reserve, where here in Australia, the Reserve Bank does its own thing.

Yes, it does.

But what the Fed does has a major impact on the Australian Central Bank, because

Aside from trying to reduce demand by increasing your mortgage repayments, one of the principal channels through which interest rate rises reduce inflation is through the exchange rate effects.

And at the moment, the Australian dollar is relatively stronger than it would be otherwise because our central bank has raised twice.

while other central banks are still sitting on their hands.

And that's seen the Australian dollar propped up.

If the US Federal Reserve starts to raise rates, or if markets think it is about to start raising rates, the US dollar will be boosted by that.

And relatively, the Reserve Bank of Australia will get less of an effect because the Australian dollar will be pushed lower.

And they might have to try harder by raising rates even further to keep up because it's about these interest rate differentials.

between major economies like us and the US.

And just to bring it all back to what's happening in the Middle East, because I think it's important to kind of head towards that.

That is the key issue.

The Reserve Bank and other policymakers will be looking very closely at that.