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Remove items from your saved list<\/a> to add more.<\/p>\n AAA<\/p>\n Donald Trump is not living rent-free in the heads of central bankers.<\/p>\n He\u2019s ratcheting up rents like the New York property tycoon he was before moving into the White House, creating pandemonium and pain for those trying to direct monetary policy.<\/p>\n The decision by the Reserve Bank to lift interest rates on Tuesday – and the associated risk with that move – was driven in large part by the occupant of the White House and his war against Iran.<\/p>\n Yes, the nation had inflation pressures before the war began. The rate hikes of February and March were clear evidence that low productivity improvement meant even modest economic growth resulted in a lift in inflation.<\/p>\n But throw in a war that has pushed up prices from oil to fertiliser to helium, and you get the mess that is causing headaches for every central bank.<\/p>\n The intensity of that headache is evident in the RBA\u2019s best guess on how the economy will perform over the next 48 months.<\/p>\n It was a year ago this week that the Reserve released its then prognostications on the state of the economy in the post-Liberation Day tariff world.<\/p>\n At the time, when analysts feared Trump would honour his word and inflict tariffs on everyone and everything (pity the penguins of Heard Island<\/a>), the Reserve feared it may have to cut interest rates to prop up the domestic economy.<\/p>\n Fortunately, some sanity – largely from financial markets which responded to Trump\u2019s tariff plans with one of the biggest drops in share prices this century – prevailed.<\/p>\n The worst-case scenario feared by the Reserve and most other central banks did not come to pass.<\/p>\n Now a year on, the bank has mapped out three separate outlooks for the Australian economy. The swing factor is not the cash rate, but the price of oil.<\/p>\n Related Article None of its scenarios are \u201crosy\u201d. Its baseline forecasts assume oil starts falling from around the $US100 a barrel mark pretty quickly and shipping movement through the Strait of Hormuz is back to where it was pre-war by Christmas.<\/p>\n That delivers a slowdown in the economy barely above a per-capita recession, higher unemployment and higher inflation. That\u2019s not pretty.<\/p>\n But wait, there\u2019s more. Two other scenarios paint an even bleaker picture.<\/p>\n If oil remains around $US95 a barrel and the Strait of Hormuz isn\u2019t back to normal until early 2027, the economy takes a hit of between $35 billion and $50 billion by mid-2028. Inflation reaches 5.2 per cent by June with unemployment nudging five per cent.<\/p>\n A more dire situation develops if oil pushes towards $US145 a barrel (which some experts believe is on the cards). Under that scenario, the economic hit is closer to $60 billion while about 120,000 extra Australians are out of work.<\/p>\n About the only positive is that if the bank moves interest rates in line with what investors are expecting – with at least one more rate hike by year\u2019s end – then inflation will fall quicker than the Reserve had been anticipating before the war.<\/p>\n Inflation could be back to 2.4 per cent by the middle of next year. That\u2019s half a percentage point lower than what the Reserve forecast in February.<\/p>\n It would hang around the mid-point of the RBA\u2019s 2-3 per cent target band for at least the next 12 months. For a bank that hasn\u2019t hit its target since Tony Abbott was prime minister, that could be construed as a big win.<\/p>\n But such a victory will have come at a cost. The cost will be measured in falling real wages. In a drop in the number of homes being built. In the abandoned plans of businesses to expand. In the tens of thousands of extra people out of work.<\/p>\n As bank governor Michele Bullock suggested, interest rates may have been held steady on Tuesday but for the war.<\/p>\n Sadly, the situation could get worse. Some countries have already been forced into rationing fuel as they struggle to get adequate supply.<\/p>\n Bullock confirmed the bank\u2019s modelling does not factor in the impact of possible shortages of fuel (and other hydrocarbons). Think odds-and-evens on car registrations to buy petrol, a reduction in fertiliser to farmers, diesel supplies limited to heavy industry rather than Toorak tractors.<\/p>\n \u201cIf that were to happen, I think we\u2019re in a very different world, and we\u2019d be looking very differently at the way things are panning out in the economy,\u201d she said.<\/p>\n Just another cost from our New York tycoon, Donald Trump.<\/p>\n Cut through the noise of federal politics with news, views and expert analysis. Subscribers can sign up to our weekly Inside Politics newsletter<\/a>.<\/p>\n Save<\/p>\n You have reached your maximum number of saved items.<\/p>\n Remove items from your saved list<\/a> to add more.<\/p>\n![\"Donald](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/05\/631ce6b628e53c276aca796d23be083e7173b6d23b543c294ecb3384496651c3.jpeg\")
Donald Trump is causing pain for those trying to direct monetary policy.Matthew Absalom-Wong<\/p>\n![\"Reserve](\"https:\/\/www.newsbeep.com\/au\/wp-content\/uploads\/2026\/05\/e9fc5a627cd243e23a891e0a4b26d2bb06037c2a.jpeg\")
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Shane Wright<\/a> is a senior economics correspondent for The Sydney Morning Herald and The Age.Connect via X<\/a> or email<\/a>.From our partners<\/p>\n","protected":false},"excerpt":{"rendered":"Save You have reached your maximum number of saved items. Remove items from your saved list to add…\n","protected":false},"author":2,"featured_media":650803,"comment_status":"","ping_status":"","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[11],"tags":[64,63,99,164],"class_list":["post-650802","post","type-post","status-publish","format-standard","has-post-thumbnail","category-economy","tag-au","tag-australia","tag-business","tag-economy"],"_links":{"self":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/650802","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/users\/2"}],"replies":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/comments?post=650802"}],"version-history":[{"count":0,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/posts\/650802\/revisions"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media\/650803"}],"wp:attachment":[{"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/media?parent=650802"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/categories?post=650802"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.newsbeep.com\/au\/wp-json\/wp\/v2\/tags?post=650802"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}