Costello: Hike interest rates now

The Australian has the story to ruin household’s day:

Peter Costello, chairman of the nation’s $130 billion Future Fund, has urged the Reserve Bank to lift interest rates now to avoid households’ taking on more debt, which he says is contributing to “massive imbalances” in the economy.

The nation’s longest-serving treasurer also expressed concern that the Turnbull government was balancing the budget mainly by lifting taxes. “The worry is we do it on the revenue side rather than spending side,” he said, suggesting lifting taxes would lead only to calls for more spending.

“We have to normalise interest rates, and the longer you leave it the more unbalanced your economy is going to get,” Mr Costello said, suggesting Australians weren’t “worrying about debt ­because they can get it at such low rates”.

…“Once (the price of) money ­returns to more normal levels, what is going to happen to asset prices and the housing market?” he said, foreshadowing a “big problem” when those prices ­reversed.

It will never return to “more normal levels” via the cash rate. But it may happen via global markets.

The call to tighten is obviously right, has been for six years, but it should still be done via either stronger macroprudential or slashing immigration. It’s easy if you have the will.

Hiking rates now is a guaranteed recession next year as households bunker into the dwelling construction bust.

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