One of Henry’s favourite
economists was called by a journo, let us call him “Mr Goss”. The first
question was about Ian Macfarlane’s contribution as RBA governor. The reply was
“suitably polite”, saying inflation expectations had been stabilised and
quarterly statements on monetary policy improved but there were still no
statements when the board did not decide to change monetary policy.

Furthermore, “the major criticism
remains that the easing after 2000 was too big for too long, creating an
unnecessary housing price rise that now constrains monetary policy action”.
Henry adds “hear, hear”. (The evidence for Henry’s relative inflation fighting
zeal is linked here.)

Henry’s informant was then asked
about the field to be appointed governor. Mr Goss apparently believes Glenn
Stevens is still the favourite, but two weeks ago Ken Henry emerged in
Canberra gossip
as a serious rival. This is despite his reappointment in April/May as Treasury
Secretary.

Why might the Treasurer be looking
for an alternative to the estimable Mr Stevens?

There is always the possibility
that Stevens spoke out too bravely on some policy issue, a known way for
officials to limit their career prospects. It was the aggravation resulting from
the Banana Republic episode that led Paul Keating to appoint Treasury Secretary
Bernie Fraser as RBA Governor.

There is also the obvious fact
that Treasury Secretaries tend to be closer to Treasurers than are Deputy
Governors. And a Treasury Sec is always likely to be interested in a job he
would sensibly regard as less taxing (no pun intended) and more fun – dinners in
Basle have to be experienced to be
believed.

So, if there is a surprise with
this appointment, remember you first read it here.

Overnight the US had
another attack of concern about inflation, which drove bond yields up (5 basis
points) and equities down (0.5 %). The US dollar was as strong as 10 men, the
price of oil rose and metal prices were mixed. So Asian and resource equities
are unlikely to repeat yesterday’s stellar performance, but it seems the
aftershocks are diminishing.

More reading at Henry
Thornton.