RBA interest rate: Mr. Taylor says up, Mr. Market says down

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The Taylor rule says the RBA has 50bps to do across Q4’11 and Q1’12, and then another 50bps in 2013.

I doubt that they’ll do so — if markets remain this stressed, 3% CPI will be just fine at Martin Place – after all, if there is a crisis, it is an advantage to begin with higher inflation (as you can be more assured you won’t touch the zero lower bound).

Mr Market thinks they are cutting 50bps before the year’s end. That’s going to take a crisis.

Today, that doesn’t seem insane. I hope July US non-farm payrolls is not -100k tonight.

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