Mr Rainbow is on the run at the New Daily:
A widely-misreported warning of eight rate hikes in two years would in fact be good news for the economy, according to the man who made the prediction.
Dr John Edwards, former economic advisor to Paul Keating, former RBA board member and former chief economist at HSBC, struck fear into the hearts of mortgage holders this week by supposedly forecasting that the official cash rate would rise from 1.5 to 3.5 per cent by the end of 2019.
He actually wrote that the RBA would be forced to lift rates to 3.5 per cent only if the Australian economy substantially improved.
“This implies that within three years Australia’s economic world has returned to more-or-less normal, with wages growth of 3.5 per cent, inflation of 2.5 per cent, and output growth of 3 per cent,” Dr Edwards said.
He admitted such a rosy outcome might never eventuate.
“The pace of tightening will anyway be governed by the strength of the economy,” he wrote.
“If household spending weakness, if the long expected firming of non-mining business investment is further delayed, if the Australian dollar strengthens, if employment growth is persistently weak, then the trajectory of rate rises will be less steep and the pace less rapid.”
The piece prompted warnings that households would be forced to pay hundreds more a year in mortgage repayments, but Dr Edwards himself feared no such disastrous outcome: “The increases will cause less distress than will be widely observed.”
He said this was because housing interest payments were at 7 per cent of household disposable income, compared to 9.5 per cent in 2011 and 11 per cent just before the US-triggered global financial crisis.
These figures ignore the enormous impact of principal repayments. But the latest census data confirmed his point, showing that most parts of Australia were paying less overall on their mortgages than five years ago.
You jumped the shark, Mr Rainbow.
