Insights

Two weeks ago I said that I thought that a slowdown in employment growth in the US gave the Federal Reserve room to cut rates. And what we've seen last week is a Fed meeting and the Fed has cut rates.

But what I also learned from last week's meeting by the Fed is something that echoed what Andrew Hauser was telling us when he was here doing a presentation for us. That was that there really is no general theory of the action of central banks. What central banks actually do is they look at the data as it is presented to them at each meeting and then make the decisions.

And I said that we'd see what the impact of that data was from looking at the Summary of Economic Projections, which was released after the Fed meeting. The Summary of Economic Projections shows the combination of the views of all of the people who are on the Federal Reserve Board sitting on Constitution Ave in DC, plus all the independent Presidents of the Federal Reserve, whether or not they were also part of the committee at the time.

What we see is that the actions of the Fed last week were very much how the data had changed since the middle of the year. We can see how the data changes and how it affects their views by looking at the difference between the outlook that was in the June Summary of Economic Projections compared to those for September.

In the September economic projections last week, the first thing was that the expectation of GDP growth for the year fell from 2.1% to 2%.  More importantly than that, the outlook for unemployment at the end of the year rose from 4% to 4.4%.  I have explained before how when unemployment goes up in our model for the Fed funds rate or for the Australian cash rate, that puts downward pressure on where you think rates should be in the future.

What also happened was that the expectation for inflation in this year fell. So the PCE deflator, which runs about 50 basis points lower than the CPI, instead of an expectation of 2.3% for the year, their expectation fell to 2.1%. That's equal to a CPI of about 2.6% for the full year.

Interestingly, the RBA doesn't expect to get into that range until 2026. At least that's what Michelle Bullock was talking about on Tuesday. For core PCE, the Fed expectation fell from 2.8% to 2.6%, which is similar to 3.1% on the CPI. As a result of that, because of the increase in unemployment which they expected at the end of the year and the fall in inflation that they expected at the end of the year, their expectation of where the Fed funds rate would be at the end of the year changed dramatically as a result of the meeting.

Prior to this meeting, they expected in the June summary of economic projections that the Fed funds rate at the end of the year was 5.1%, which means by the end of the year you're going to get a rate cut of 25 basis points. Now in what they released last week because of that increase in unemployment and fall in expected inflation, they thought that the Fed funds rate at the end of the year would end at 4.4%. That's a 100 basis point rate cut including what they've just done.

Now we had 50 basis points last week. So what we would expect would be another 25 basis points at the November meeting and another 25 basis points at the December meeting to take the total rate cut to 100 basis points.

So in answer to the question, what is the Fed going to do now?

The Fed is going to give us two more rate cuts, one next month and one the year after. And those rate cuts will continue next year. But exactly how big and when? We don't know, but it's important to understand that those cuts in the Fed funds rate are only possible because at the same time, the Fed is continuing Quantitative Tightening. This means they're selling off the bond holdings that they acquired.

They acquired up to $9 billion worth of bonds and other assets to reflight the US economy during the pandemic. And they've been running those assets down at around a trillion dollars a year. Now those assets have fallen to about $7 trillion. We expect they'll continue to run off those assets at least down to $4 trillion. They could go even lower.

That means it's a trillion dollars a year of Quantitative Tightening that offsets the cuts in rates. It generates a basis for the reduced reduction in the money base, which lets the Federal Reserve cut rates.

So it's that combination of things. But it's important if you want to compare the situation that the Federal Reserve is now in to where the RBA is now in, we go back and look at those. That's where the trimmed mean is, and where they expect inflation to be. The trimmed mean in the most recent level of the trimmed mean in the US is for a trimmed mean of 3.2%.

That gives us a model for our equilibrium level including the other components including unemployment, including inflation and inflationary expectations.

This gives us a model estimate for the Federal Funds rate right now of 3.1%.

So there's plenty of room further for the Fed funds rate to fall over the next year.

The problem is with when we do the RBA model, inflation is higher.

Australian core inflation is 60 basis points higher now than it is in the US. That means that the equilibrium level of our cash rate model in Australia is 3.9%. That is only slightly below the 4.35% where the cash rate currently is.

Falling inflation in the US gives it a low equilibrium level for the Fed funds rate model and allows the Fed to cut.

But inflation isn't falling in Australia. That means that our cash rate model estimate is significantly higher.

So therefore it's far more difficult for the RBA to cut than it is for the Fed to cut.

Again, quite dramatic changes in US unemployment expectations.

Unemployment expectations rose from 4% to 4.4%.

But the end of the year the PCE deflator fell with core PCE now expected to be 2.6%, equivalent to 3.1% in the CPI.

And the expected Fed Funds rate at the end of the year fell from 5.1% to 4.4%.

All of this means that the cuts that we've got from the Fed will be followed up by further cuts this year and next year.

Unfortunately inflation in Australia is still too high for the RBA to follow.

Through August, we saw investors generally become more positive on the outlook for the consumer, with a recovery in sales towards the backend of FY24 and continuing a positive trajectory into the first couple of months of FY25. Share prices were volatile though, with notable stand out performers and laggards. Sales were in line with forecasts and up yoy, but earnings were down driven by inflationary cost pressures, although better managed than expectations. Dividends in FY24 were much better than expected which may indicate that companies are confident in the stability of earnings and cash flow despite no meaningful sign of a recovery in earnings yet. Generally, companies reported a positive start to the year, albeit comping a weak corresponding period. However, they did undershoot our expectations, resulting in lowering our EPS forecasts by (2.4)% (median).

Even in a challenging environment, we think the strongest retailers/ franchises can outperform on a relative basis as they take market share, maintain cost discipline, and apply effective pricing structures, providing improved operating leverage for when cyclical conditions inevitably improve. Our key picks are BLX, SUL and UNI.

Beacon Lighting (BLX)

Beacon Lighting continues to drive strong growth in Trade sales, offsetting softness in Retail sales in a subdued consumer market to result in a stable LFL performance. Gross margins were surprisingly robust in FY24 and we expect this to be sustained in FY25. Beacon Lighting continues to take share and we think it is well positioned to achieve strong earnings growth when consumer sentiment turns.

Outlook commentary:

• "Trading momentum has continued into FY25" with Trade momentum "positive".
• Five new stores are planned for FY25.

Super Retail Group (SUL)

SUL reported sales +2.1% to A$3.9bn; EBIT -8.6% to ~A$400m; and NPAT -11.5%. An in-line result, lifted by a strong FY25 trading update (group LFL sales +3%); an improving rebel outlook; confidence in gross margin sustainability; and a larger than-expected special dividend (50cps vs 25cps MorgansF). A positive update from SUL, supporting its recent strong share price appreciation and pointing to continued momentum into FY25. We continue to maintain a positive disposition on the stock and view it as well positioned to capitalize on any improvements in underlying macro conditions.

Outlook commentary:

• Effective capital management, a better-than-expected start to FY25, resilient SCA, and improving rebel—are sufficient to offset slightly higher FY25 capex/opex expectations and support recent share price consolidation.
• We are encouraged by the start to FY25, supporting our view that SUL is well positioned to continue to manage an uncertain consumer outlook.

Universal Store (UNI)

UNI reported a strong FY24 result with underlying earnings up 16% on FY23, coming in ahead of pre-released guidance. The strong result could be attributed to sales growth of 9.7%, improved gross margins, up 110 bps to 60.1% and well managed costs. UNI declared a dividend of 18.5c bringing the total to 35.5c which was up 25.6% and ahead of our expectations. The strong momentum seen in 2H has continued into the first 7 weeks of FY25, with double digit like-for-like (LFL) growth across all brands.

Outlook commentary:

• For the first 7 weeks of FY25, US sales up 15.3%, against (9)% decline in the pcp, with LFL sales up 12.5% Perfect Stranger sales up 89.9%, against +4.9% in the pcp, with LFL sales up 24.2%. CTC sales in the direct-to-consumer (DTC) channel up 13.3%, compared to +4.1% in the pcp and LFL sales up 22.4%.
• UNI expects to open 4-6 new Universal Stores as well as 2 major refurb and 3 relocations in FY25, 4-6 Perfect Stranger stores and 1-3 new THRILLS stores.

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At a high level, the tech and telecom sectors are currently trading at premium valuations, while the gaming sector is priced more attractively. Notably, earnings increased by 5% for FY25, and share prices also rose by 5% over the past month. Although these trends are aligned, a deeper analysis reveals significant disparities between earnings growth and share price movements.

This article provides a deeper look at some of the key picks emerging from the reporting season. Gain valuable insights into market trends and investment prospects that could shape their strategies and decisions moving forward. Keep reading to uncover which stocks are poised for growth and why they might be worth your attention.

Tech

NEXT DC (NXT)

The stock increased by approximately 4% over the month and recently secured additional capital, positioning the company with strong funding to scale its business internationally. Future share price performance will likely hinge on securing significant new contracts. While major contract wins are anticipated, it's important to note that contracts secured in the past year or two typically take 2-3 years to fully ramp up, suggesting that EBITDA could double based on these existing agreements.

Outlook commentary:

• Given the size of NXT’s order book it appears there are more costs associated with scaling up in FY25 than anticipated by the market but the size of the opportunity remains substantial and the opportunity and outlook bright.
• NXT is well positioned to capitalise on significant and ongoing structural growth driving increased demand for data centres, which is fuelled by business digitisation (colocation), cloud computing, and Generative Artificial Intelligence (Gen AI).
• Existing facilities are contracted and gradually filling up over the next five years, with new ones coming online.
• NXT is expected to substantially expand its footprint and continue winning new business.

AI Media (AIM)

This was the top-performing tech stock, rising 81% for the month and 140% over the past 12 months. The company has shifted from facing major headwinds to enjoying substantial tailwinds by leveraging AI in its captioning business. Over the past three years, they disrupted their own business model and are now capturing significant market share. Management is optimistic about achieving their aspirational targets, including a goal to increase EBITDA from $4.5 million to $60 million over the next five years. If they meet this target, the stock could potentially increase fivefold from current levels, offering a 60% IRR. Though it remains on the higher-risk end of the spectrum, the risk/reward equation looks compelling.

Outlook commentary:

• Management accelerated AIM's adoption of technology, including AI and proprietary hardware/software.
• The business has largely completed the transition and has returned to revenue, profit, and free cash flow growth in the past twelve months.
• AIM is considered substantially undervalued, presenting value for investors in a small, profitable, and fast-growing technology company.
• Management remain committed to driving further growth and profitability and targeting >80% Tech by Dec 2025.

Media/Classifieds

Seek (SEK)

SEK’s FY24 results were below expectations and complicated by the effect of the recent sale of its Latam businesses. On an adjusted and continuing operations basis, total revenue and EBITDA were approximately 2-5% below Visible Alpha consensus, but it was the softer-than-expected guidance that pushed the share price down on the day of results. The base case for FY25 was for revenue only in line with FY24. Seek has maintained its FY28 aspirational target of $2 billion in revenue.

Outlook commentary:

• FY25 revenue guidance: Expected to match FY24, in the range A$1.02-1.14bn.
• FY25 EBITDA guidance: A$430 – A$500m, about 12% below consensus at the midpoint.
• FY25 adjusted NPAT guidance: A$130 – A$180m.
• ANZ: Anticipated softer volumes in absolute terms over FY25.
• Asia: Forecasted softer volumes in 1H25 with a partial recovery in 2H25.

Camplify Holdings (CHL)

Camplify’s FY24 result was broadly in line with expectations. Gross transaction volumes (GTV) increased by 13% to A$165m (less than we’d forecast) but a higher-than-expected group take-rate saw revenue broadly in line with our estimate. Whilst the PaulCamper integration impacted bookings/revenue in the period, this is largely completed, with Camplify expecting a return to a more normalised performance in FY25.

Outlook commentary:

• Camplify sees FY25 as a ‘key deliverable year’ along its 3-5-year roadmap. It anticipates growing core revenue and customers.
• Camplify will focus on reducing the ratio of operational costs to revenue to optimise its EBIT performance.

Airtasker (ART)

Airtasker’s results were in line with its quarterly update released in July. Its marketplace experienced a slight 3.5% decline in GMV yoy, totaling A$190.6 million, but there was a small improvement of 1.1% in the second half of FY24. Revenue grew by 6% to A$46.6 million, driven by better monetisation rates and a 6.6% increase in gross profit to A$44.5 million. Revenue from Airtasker Marketplaces rose 9.8% to A$38.1 million, thanks to a higher monetisation rate and reduced cancellations. Offshore markets are growing, with the UK showing strong results after a brand campaign, with GMV up 35% in Q4 and annual revenue up 41%. The US market, with a cautious marketing strategy, saw a 9.4% increase in GMV and a 74% rise in revenue. Airtasker also announced two more media partnerships (following Ch4 in the UK as well as oOh!Media and ARN Media domestically), these being in the US to assist its ramp of brand awareness and initial platform scaling.

Outlook commentary:

• Post achieving its aim of being FCF positive for FY24, Airtasker intends to operate on positive free cash flow basis on balance sheet.
• Airtasker intends to target consolidated double digit revenue growth from its various marketplaces and geographic regions.
• Airtasker has flagged an increase in its investment in marketing activities to drive the top line (via cash investment and media partnerships)

Telco

Superloop (SLC)

SLC's FY24 results exceeded expectations, with underlying EBITDA up 45% year-over-year to $54 million and strong free cash flow of $27 million, a 22% increase. Net debt dropped significantly by 65% to $8.7 million, and without lease liabilities, SLC has no net debt. It remains attractively valued with strong organic growth and an ungeared balance sheet, allowing for potential acquisitions up to $200 million.

Outlook commentary:

• Guidance for underlying EBITDA growth has been refined to $83-88 million, consistent with earlier expectations, and shows potential for further upside due to strong business momentum.
• FY25 capex is slightly higher than anticipated at $28-30 million, up from initial estimates, due to new contract wins. This increase, flagged as a possibility, is considered high-returning growth capex.
• As of June 30, 2024, Origin had 4.7 million customers (up 132k YoY) and 152k NBN subscribers (up from 130k at the deal announcement). They are adding about 4.5k net NBN subs per month and aim for ~600k by FY26. FY25 EBITDA guidance for Origin is around $14 million, but with current trends, it could be closer to $20 million, pending conditions and migration by October 2024.

Gaming

Light & Wonder (LNW)

LNW delivered an impressive 2Q24, with revenue reaching $818 million, up 12% from the previous year and 3% above forecasts. Adjusted EBITDA grew 17% to $330 million, surpassing consensus expectations by 7% and our estimates by 2% at a margin of 40.3%. This margin improvement was largely driven by strong performance in land-based gaming and a continued shift towards premiumisation. Notably, North America remains a key growth driver, making sixteen consecutive quarters of growth in Gaming Operations. The company generated $141 million in operating cash, a significant improvement on the prior comparative period. Net debt to EBITDA ratio remained stable at 3x, within the company’s target range of 2.5-3.5x.

Outlook commentary:

• Matt Wilson, CEO: “We saw strong progress in the Gaming business as the expansion of units in the North American installed base reached an inflection point. Our global presence enables further product refinement and market penetration with our suite of games and casino solutions. We continue to develop our catalogue of proven, evergreen franchises to bring the most engaging experiences to our players, leveraging the power of our portfolio across land-based, social and iGaming platforms”
• LNW reiterated its US$1.4bn Consolidated Adjusted EBITDA target by 2025.

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As interest rates normalise, earnings quality, market positioning and balance sheet strength will play an important role in distinguishing companies from their peers. We think stocks will continue to diverge in performance at the market and sector level, and investors need to take a more active approach than usual to manage portfolios. We add The Lottery Corporation, Reliance Worldwide and Polynovo following the August reporting season. Removals this month: Coles, Inghams and Avita Medical.

September best ideas

The Lottery Corporation (TLC) - ADD

Large cap | Gaming

TLC's FY24 result was impressive, driven by a favourable year for Lotteries and strong active customer growth. Despite lapping a record period of growth in Lotteries, we remain positive on the stock as current lottery volumes continue to perform well. The company mentioned that Saturday Lotto will be the next game to receive an update, which should benefit the base game divisions significantly and likely come with a price increase, offsetting some recent softness. Additionally, TLC reported a leverage ratio of 2.5x, below the guided range of 3-4x, and has expressed interest in renewing the VIC licence. Based on our estimates, TLC is set to deliver a 4.5% FCF yield and a 4% dividend yield in FY25. The stock trades in line with its historical valuation ranges and we view it as a solid option for investors seeking stability.

Reliance Worldwide (RWC) - ADD

Mid cap | Industrials

RWC is highly leveraged to an improved demand back drop via its R&R exposure. Recent cost saving measures will make the leverage to improving demand even more appealing, while continued penetration of SharkBite Max and other new products will also assist. This is a great business with defensive characteristics, a healthy balance sheet, new product innovation and operating efficiencies to support future earnings growth.

Polynovo (PNV) - ADD

Small cap | Healthcare

PNV’s NovoSorb® technology has gained rapid market traction, initially in burns and extending into trauma. Consensus has revenue growing by >20% p.a. for the next three years. Factors that will drive the revenue growth include: 1) expansion into new regions like Japan, China and Brazil; 2) a successful tender application in India; and 3) construction of its third manufacturing facility which is expected to support an additional A$500m in sales (5 times current production volumes).

September removals

Coles (COL)

Large cap | Consumer Staples

While Liquor earnings remain weak, we expect the core Supermarkets division (94% of FY24 EBIT) to continue to be supported by further improvement in product availability, reduction in total loss, greater in-home consumption due to cost-ofliving pressures, and population growth. Benefits from recent supply chain investments should also start flowing through in FY25. Despite a reasonably positive outlook, we see COL's valuation as now fully captured in the price and we recently downgraded the stock to a Hold.

Inghams (ING)

Mid cap | Consumer Staples

Following the weak update at the result, ING is lacking catalysts. The stock is inexpensive but confidence is shaken by the loss of some WOW volumes. 1H25 result will likely fall on the pcp. They will return to growth in the 2H25.

Avita Medical (AVH)

Small cap | Healthcare

Avita has downgraded full year guidance which disappointed markets. Although the pipeline looks encouraging the market will take a little more convincing. The long-term opportunity remains but we remove AVH this month given the short term risks and replace it with PNV.

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I've spoken before about how central banks view employment and how looking at growth rates of employment, particularly year-on-year growth rates, gives you a feel for how central banks, particularly the Federal Reserve or the RBA, are feeling about the economy.

This is not our model of short rates; our model is based on inflation, unemployment, and inflation expectations, which is completely different. However, if you look at when year-on-year employment is growing faster than the long-term median, you'll see that central banks tend to increase official rates during such periods. Conversely, when year-on-year employment growth is growing slower than the long-term median, central banks will tend to cut rates.

Currently, we have a picture of the year-on-year growth of US payroll employment. The long-term average for the last two decades is 1.6%. Recently, there was significant media coverage of the employment number, and the market fell heavily, with some attributing it to the bad employment numbers. At that time, year-on-year employment growth in the US was 1.6%, exactly the same as the long-term median, so there was no reason to panic.

Since then, we've seen more discussion about downward revisions of US employment growth. The current chart shows a very small downward revision, with the rate of growth falling from the long-term median of 1.6% to 1.5%. That's a decline of just 0.1%, which is hardly anything to panic about.

Looking at the history of US employment, there have been significant variation since 2019. In 2020, employment growth in the US slumped by 13.4% in one year, reaching its lowest point in April 2020. It then recovered by 11% in April 2021. By October 2021, the rate of growth had declined to 3.8%, and it then increased to 5% for the year to February 2022. After that, there was a long-term gradual decline in growth rates, reaching a bottom in February of this year with a growth rate of 1.7%. Around that time, the Fed was optimistic about cutting rates, but the following month saw a surge in employment, which increased the growth rate to 1.9%.

As we enter the second half of the year, employment growth is slowing. Six months ago, there were 157.7 million employed, inn August there were 158.7 million employed. While there is still positive employment growth, it is now increasing at a rate of only 0.7% over the six-month period. Year-on-year growth is now marginally below the long-term average. This allows us to confidently forecast that when the Fed meets again and Jay Powell presents on the 18th of this month, he will announce a cut in the Fed funds rate of 25 basis points.

In addition to this rate cut, the Fed will also release its Summary of Economic Projections. This summary will provide insight into where the Fed thinks interest rates are headed in the period ahead. Once this information is available, I'll provide further analysis on where the Fed believes the US economy is going and how that impacts future rates.

There's a lot of commentary about the results on Australian GDP for the June quarter, which compares it to very low levels of growth that we saw way back in the 1990s.

I think to understand what's happening, it's really good to look at the experience that the Australian economy has been through since 2019 and the enormous variation in growth that we've experienced. These variations in GDP are by far the largest variations in the Australian economy in my working lifetime.

We had, in 2020, a slump in activity as the economy was shut down, where GDP fell by 6.1%. This is easily the biggest slump since the 1930s. The economy then recovered. The growth rate for the year to June 2021 was 10.6%. This is overwhelmingly the largest growth rate in either wartime or peacetime recorded since the national accounts have existed in Australia.

What then happens is you'll see in the chart that 10.6% growth is the big bump, but what's really important is that the second bump you see is in 2022, which is actually in the third quarter of 2022. Two important things happened directly before that in that little low patch of growth just before that second peak.

What happens in the first quarter of 2022 is that Anthony Albanese is elected Australian Prime Minister. What happens directly after that is that the Australian commodity index published by the Reserve Bank of Australia (RBA) reaches its all-time highest level in the second quarter of 2022. That means not just resource earnings but the revenue that the government receives as a result of commodity exports reaches its highest level following that peak.

That's really important for understanding what then happens in Australian economic policy. So we have the re-acceleration of growth in the third quarter of 2022 to 5.8%. Then you have a budget the following year. In the budget the following year, you've got the highest revenues ever for the federal government.

What's actually happening here is that income goes up by about 2% of GDP, which is about $50 billion a year more than you would normally expect in a normal cycle.

Now, in a similar circumstance back in the early 1950s, when the Menzies-Fadden government was faced with the previous biggest-ever commodity boom in Australian history after World War II, some people call it the “Wool Boom,” some people call it the “Korean War Boom.” What the government decided to do was to run a budget surplus of 2% of GDP. When we scale that to the current size of the Australian economy, that extra $50 billion of revenue that the Australian government was getting from that all-time record peak in commodity prices would have been saved and gone into a surplus because, as everybody knows, long-term commodity peaks can't last.

What's actually happened is that the Albanese government decided to increase their spending to the level of the revenue. You can see that in the budget papers where Jim Chalmers announces that he's making a surplus, but if you look at it, it's a wafer-thin surplus. He's making all this money and he's spending all this money, and there's a very shallow, tiny surplus of a fraction of 1% of GDP.

Then what happens is that commodity prices start to fall, and as commodity prices start to fall, the revenue that the government is receiving also starts to fall as the economy slows. What happens is that the peak of 5.8% in the third quarter of 2022 is followed by year-on-year growth which falls very sharply to 2.6% for the full year 2022; in 2023, for the full year, growth is 1.6%, and for the year to June, which we've just seen, growth is only 1%.

So the economy has slowed down, commodity prices have fallen, and in the most recent budget papers, we've seen that Jim Chalmers is budgeting for a deficit of 1% of GDP. Now we have that debate opening up between the Treasury and the RBA. What's actually happening is because the Treasury has decided to spend the money as extra stimulus, at least 1% of GDP.

I think structurally that there is a long-term structural deficit built in of around 2% of GDP by the government. As we move forward, that structural deficit will start to appear in the budget papers. Which means that for an economist, this is a really interesting time to live in now in terms of what's actually happening in GDP.

One of the things I did during the beginning of the pandemic, together with another economist called Brendan Markey-Towler, was some research into what I call “nowcasting” the Australian economy or “nowcasting” GDP from employment numbers.

Now, I've shown over previous weeks charts of employment growth and how when it's higher than the long-term trend, you expect rates to go up; when it's lower than the long-term trend, you expect rates to go down.

Well, in terms of GDP, we're not using employment growth, but we're looking at the growth in or the movement—the increase in hours worked—because hours worked plus productivity is equal to GDP.

There's been a modest increase in hours worked of about 0.9% over the last year. When we build a model on that, and in chart number two, you can see the red line is the model based on all the nowcasts based on hours worked.

You can see what it's showing is that growth is slowing down to around 1% of GDP. This is a really good thing because even if some people criticise Jim Chalmers for not doing his job, it does show that the RBA is doing its job, because that very low level of growth that we have is what's called “The Narrow Path.”

Growth is very low, but it is not negative. That is what is meant by a “Soft Landing” or the “Narrow Path.”

Hopefully, what will happen is growth will continue at this low but slow positive level. As it does so, unemployment will ratchet up. We think unemployment will be around 4.8% by the end of the year.

That high level of unemployment will put downward pressure on prices, downward pressure on wages growth, and that will bring inflation down to a level of say 3% or less.

The RBA, which has the lowest interest rates in the English-speaking world—our rates are 1% lower than the Federal Reserve, 1% lower than the Bank of England, and lower than even the Reserve Bank of New Zealand. The current state of the Australian economy may feel very frustrating in terms of slow growth; this is certainly frustrating for some politicians, but this is the “Narrow Path.” This is the slight level of positive growth which allows you to get inflation down and avoid a recession.