RBA Deputy Governor Invokes Phillips Curve to Defend Rapid Rate Hikes Without Hammering Jobs

The Quick Take

• Australia's RBA is citing the Phillips Curve to defend its rapid rate hiking cycle, betting it won't crush employment
• Deputy Governor Andrew Hauser says the price-employment relationship gives the central bank confidence in its tightening path
• The RBA's bet mirrors similar frameworks used by the Fed and ECB during their own tightening cycles

Australia's Reserve Bank of Australia is invoking the Phillips Curve — the theoretical trade-off between inflation and unemployment — to justify its aggressive rate hiking program. Deputy Governor Andrew Hauser made the case that the established relationship between prices and jobs gives the RBA confidence that its tightening cycle will bring inflation under control without triggering a sharp rise in unemployment. This position follows similar frameworks cited by the Federal Reserve and European Central Bank as they navigated their own rapid tightening campaigns, suggesting global central bank communication is converging on similar justifications.

The RBA's confidence in the Phillips Curve framework has direct implications for Australian rate-sensitive sectors. Banks and financial institutions that depend on net interest margin expansion will benefit if the RBA maintains a higher-for-longer posture. Australian homeowners carrying variable rate mortgages continue to face payment pressure, however, with each additional hike adding to household debt servicing costs. The housing market, which showed resilience earlier in 2026, faces renewed pressure if the tightening cycle extends further than currently priced by futures markets.

The key test for the RBA's framework is the unemployment data over the next two quarterly reporting cycles. If unemployment rises faster than the Phillips Curve would predict at current inflation levels, the RBA may be forced to acknowledge the framework's limitations and signal a pause. The macro variable is the pace of global disinflation — if global supply chains continue to normalize and commodity prices fall, Australian inflation could drop faster than the RBA's models predict, making an early pause the more likely outcome.

Synthesized from 1 source.