Australia Is Raising Rates. Why Not the Fed?

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Based on the data we’ve seen and the conditions here and around the world, the Board now thinks it will take longer for inflation to return to target and this is not an acceptable outcome…Our updated view, driven by the latest data is that demand was stronger than expected over the second half of 2025 and we think some of that strength has carried into 2026. That strength has also meant that conditions in the labour market have held up well and unemployment has remained lower than thought…the global economy has turned out to be much more resilient than we thought despite the ongoing high level of uncertainty and unpredictably. And finally financial conditions have eased, and it is uncertain now whether they remain restrictive overall.—Michelle Bullock, governor of the Reserve Bank of Australia (February 3, 2026)Australia is a world away from the U.S., and the forces affecting its economy are often different from the ones on the opposite side of the planet. But Americans could learn something from the RBA’s recent about-face, because in this case, the circumstances are remarkably similar. The latest data imply that fears of U.S. economic weakness were overdone. If anything, cyclical sectors, including construction and manufacturing, have begun to re-accelerate. And all of this is happening as inflation remains persistently faster than the Federal Reserve’s ostensible 2% target, especially when focusing on measures that better reflect underlying demand. That should have implications for monetary policy, as it did in Australia.Before digging more into the U.S. numbers, it is w…