Happy days: markets now pricing *three* rate cuts by May next year!

It is going to be very entertaining seeing what sort of contortions the RBA is going to pull with the historical "market pricing" assumption underpinning its inflation and growth assumptions. Assuming three rate cuts in under a year--as the financial markets believe is most likely (see chart below)--will drive higher growth and inflation way beyond the RBA's target band. My guess is that the RBA will not take the financial markets on: they will drop their historical market pricing assumption and either assume no changes in rates (or both as the Bank of England does), or keep the old assumption of two rate hikes. Who knows, frankly. The RBA is near-impossible to understand month-to-month right now, with the staff purportedly pushing to hike rates in May (as I have consistently argued was appropriate) and getting rolled by the RBA's very dovish and highly conflicted Board, which has members whose businesses are screaming out for rate cuts. This is something that needs to be resolved by policymakers in the long-term--the doves are compromising the RBA's independence. I think the staff would have liked to hike this week (hence Peter Martin's claim about an "open recommendation") but for the fact that the only two other noted hawks on the Board--Donald McGauchie and Warwick McKibbin--have now been replaced by doves. So that stacks 6 doves against two hawks and one unknown in the Treasury Secretary. Click to enlarge the chart.