Financial markets, including Australian property and shares, have been pushing record highs for many months.

Speaking at an Australian Business Economists gathering in Sydney, Reserve Bank governor Michele Bullock conceded she, and her overseas peers, were perplexed by ever-rising asset markets in the face of so many economic risks, including inflation.

Ms Bullock told the Sydney gathering that her overseas counterparts were “flummoxed” by how “sanguine” or optimistic the financial markets had become.

“Could it all end up very badly?” she questioned, pondering whether the financial markets could turn negative.

“Some people are worried that might all end in tears,” she conceded.

That is a reference to wide financial and economic dislocation that could hurt economies across the world.

She said the RBA would need to pay attention to financial stability risks “if the markets take a big directional shift”.

Asked by a reporter whether the RBA risked cutting interest rates amid an “AI bubble”, Bullock responded by saying the board did not focus on asset prices in its decision-making on monetary policy.

However, she said if the financial markets did turn down in a dramatic way — without referencing the possibility of an AI bubble burst — and it hurt the economy, the RBA would consider cutting interest rates.

Unemployment not too high

This week sees the release of crucial data on the economy.

This so-called fireside chat was a chance for the RBA governor to give business economists an insight into her thinking ahead of next week’s RBA interest rates decision.

Financial risks ‘rising’ warns RBA

The Reserve Bank warns risks to the global financial system are “rising”, not receding, and Australia is not immune from any fallout.

Before that, the Australian Bureau of Statistics (ABS) will publish third-quarter inflation data on Wednesday.

Earlier this month, though, the ABS released figures showing the unemployment rate rose to 4.5 per cent in September.

RBA governor Michele Bullock told the Sydney gathering that unemployment was a “little bit too high” and inflation was also a “little bit too high”.

“[The unemployment rate has] drifted up a bit, but it’s not a huge amount out [of where we thought it would be],” Ms Bullock said.

In what some analysts might view as a nod to keeping interest rates on hold next week, Ms Bullock said: “I don’t want to leap at a single number” in reference to the unemployment rate.

RBA staff afraid to speak up

In a wide-ranging fireside chat, the Reserve Bank governor covered a number of topics, speaking to a room of economists and business representatives.

No housing supply quick fix, says RBA governor

In a rare candid moment, the Reserve Bank governor concedes that, despite the best efforts of policy makers, chronic housing undersupply will continue for at least the next two years.

On the Reserve Bank review, Ms Bullock conceded it exposed a culture in the bank where staff were afraid to speak up.

The review was designed to ensure that Australia’s monetary policy arrangements and the operations of the Reserve Bank continued to support strong macroeconomic outcomes for Australia in a complex and continuously evolving landscape.

“We’ve put a lot of effort into [establishing] an open and dynamic culture,” she said.

Monetary policy considerations

Ms Bullock has also been globe-trotting to speak with her counterparts overseas.

Most central banks seem pretty comfortable that inflation is coming back down.

But, she said, “services inflation” still appeared too sticky.

This led her into a discussion about why share markets continued to push higher in the face of economic challenges.

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