US pause and global slowdown pave the way for possible rate cuts at home, though relief may be uneven
The US Federal Reserve’s decision last night to defy Donald Trump and keep interest rates on hold amid rising global economic uncertainties has added a new layer of complexity to the Reserve Bank of Australia (RBA)'s own calculations.
With signs of disinflation abroad and intensifying pressure on central banks to support fragile growth, Australian mortgage holders may soon find themselves at the cusp of long-awaited relief – though not all will benefit equally or immediately.
The Fed’s decision to leave its benchmark rate unchanged at 4.25 to 4.5 percent, for the third consecutive meeting, underscored growing caution among US policymakers about the inflationary risks posed by President Trump’s trade tariffs and the mounting challenges facing the global economy.
In the background looms a wider question: how long can other central banks, including the RBA, resist the gravitational pull toward looser monetary policy?
Possible upsides
Australia’s fixed mortgage borrowers may be among the first to glimpse the benefits.
As global bond yields softened in response to the Fed’s pause, funding costs for lenders – many of which are tied to international benchmarks – have also begun to ease. This could soon translate into marginally lower fixed-rate offerings, particularly for borrowers refinancing in the coming months.
Yet for households on variable-rate loans, the outlook remains murkier.
The RBA under Governor Michele Bullock (pictured) has not cut rates since February, and while it held steady at its most recent meeting, speculation is intensifying that another shift is imminent.
That speculation was turbocharged this week by NAB, which released a sharply dovish forecast predicting an aggressive 150-basis-point reduction in the RBA’s cash rate by early 2026.
If NAB’s forecast materialises, monthly repayments on a $600,000 mortgage could fall by more than $500 – a striking shift for borrowers who have weathered nearly two years of successive rate hikes.
NAB expects a double cut in May, followed by further reductions through early next year, driven by weakening global growth prospects, disinflationary momentum, and the lingering economic fallout from international trade tensions.
“Disinflation is advancing, global growth expectations have weakened, and the trade shock from recent tariff changes has taken its toll on sentiment,” said Sally Auld, NAB’s chief economist, in the bank’s latest market update.
NAB is at odds with more cautious peers like Westpac and ANZ, whose rate cut projections remain modest. But the case for decisive action is building.
Crunch time
Domestically, the Australian economy continues to show signs of strain, with inflation still above target and consumer confidence under pressure.
Internationally, the Fed’s wait-and-see stance, coupled with growing scepticism about the durability of global demand, has created an opening for more assertive monetary stimulus.
Currency dynamics are also playing a role. A sustained pause by the Fed may weaken the US dollar further, lifting the Australian dollar in relative terms.
NAB has revised its year-end forecast for the currency to 70 US cents, anticipating a shift in global investor preference toward Australian-denominated assets. A stronger AUD, while helpful in curbing imported inflation, also poses challenges for exporters and could influence the RBA’s thinking on rate trajectories.
In Canberra, the recent return of the Labor government with an expanded majority has bolstered expectations for a more interventionist fiscal stance, potentially adding further support to household balance sheets. Still, monetary policy remains the primary lever for managing mortgage stress in the short term.
For now, Australia’s mortgage market sits in a holding pattern – hopeful, but wary. Fixed-rate borrowers may enjoy the first signs of reprieve if global yields continue to decline. Variable-rate borrowers, meanwhile, are left to watch the RBA’s next move with mounting anticipation.
If NAB’s predictions prove accurate, the central bank’s May meeting could mark the beginning of a turning point. But for the millions of Australians navigating high repayments and economic uncertainty, any relief – however small or staggered – will be hard-won and closely watched.
