Jobs are weakening, but inflation is still too high. Here's the trade-off the RBA says it's weighing, and what it means for your home loan

On Thursday the ABS reported unemployment at a five-year high. A day later, a Reserve Bank paper co-written by Governor Michele Bullock was making headlines for describing the dilemma that leaves the Board with: move firmly on inflation and risk more job losses, or go gently and risk high inflation sticking. It isn't a rate decision, but it is a clear window into how the Board is thinking. Here's what it says in plain English, what markets make of it, and what you can do with your home loan before Melbourne Cup Day.

What the RBA published, and what it isn't

Each year the Reserve Bank hosts a research conference for academics and central bankers. This year's, held in Sydney on 8 and 9 October under the Chatham House rule, looked at monetary policy trade-offs: what a central bank should do when its two jobs pull in different directions. Speakers included academics from MIT and Stanford and economists from the Bank of England and Bank of Canada.

The RBA has now posted a three-page overview, written by Governor Michele Bullock and the RBA's Anthony Brassil. The Nightly reports it was released on Friday 16 October. It isn't a Monetary Policy Board statement, it has no forecasts, and it doesn't say what the Board will do in November. What it does is set out, in the Governor's own words, how the RBA frames the choice in front of it.

The trade-off, in plain English

The RBA's mandate has two parts: price stability (inflation between 2% and 3%) and full employment. Usually, the paper says, those goals work together. But after a lasting “supply shock”, such as higher fuel costs or trade disruption that pushes prices up while weakening the economy, they can pull apart. The key passage:

“To bring inflation back to target in a timely way, monetary policy may need to be tightened – but that weakens demand in the near term. A more gradual disinflation may reduce the immediate demand costs but prolongs the costs of inflation, and increases the risk that inflation becomes embedded in expectations and behaviour.”

In everyday terms: higher rates can bring inflation down faster, but they do it by slowing spending, which costs jobs. Going slowly is gentler on jobs today, but means living with high prices for longer, and risks people and businesses assuming high inflation is normal.

The paper is also frank about the limits of policy. After a shock like this, “the country as a whole is poorer”, and monetary policy “cannot eliminate the real economic loss caused by the shock. It can only influence how that loss is distributed over time.” There is no pain-free option, only different kinds of pain, felt by different people at different times.

How the RBA weighs the two costs

Inflation, the paper says, “affects nearly everyone to some degree, and is currently the top economic concern in Australia by some margin” (citing the RBA's own community survey). Many of those costs are hard to measure, such as the time spent hunting for cheaper groceries or the stress of budgeting when prices keep moving.

Unemployment costs are “more concentrated, but also more readily identified”, and they can last. People who lose a job can lose their place on the career ladder. The paper's conclusion is that both matter, and that the weight given to each “should not be unduly influenced by how readily each can be measured”.

For borrowers, that's a reminder the Board isn't only watching the jobless rate.

Why expectations matter so much

The third theme is inflation expectations: whether households and businesses believe inflation will come back to target. If they do, they're less likely to push up wages and prices in ways that keep it going.

The paper warns against taking that confidence for granted. Anchoring “has to be earned and maintained through policy and communication”, and the state of expectations “may change in ways that are neither smooth nor easily detected”. That's the main argument against going too slowly: by the time a shift is obvious, inflation can be harder to bring down.

Westpac chief economist Luci Ellis, a former RBA assistant governor, made a related point, as reported by The Nightly: “Firms form expectations and set prices according to what is happening in their own industry and experience, while putting little weight on economy-wide inflation or central bank credibility.” If so, reassurance from the RBA alone may do less to slow price rises.

Why it lands at an awkward moment

Our 16 October article covered the September jobs figures: unemployment at 4.7%, a five-year high, with 39,300 fewer people in work. Meanwhile the latest ABS inflation figures (30 September) showed prices up 4.0% over the year to August, from 3.5% in July, with trimmed mean inflation steady at 3.6%.

The paper describes exactly that situation: weaker activity “may mean that unemployment and underemployment are already increasing. The costs on both sides of the mandate are then visible together.” And it notes there is “no mechanical rule” for how quickly inflation should return to target: “ultimately decisions require judgement.”

We read that as a Board keeping its options open. The cash rate is 4.60%, effective 30 September, after four rises this year. Our 14 October minutes article covered why the Board moved in September; this paper explains how it will weigh the next set of data.

Read the paper, not just the headline

Some coverage reported the Governor as saying “aggressive” rate rises may be needed. That word isn't in the paper, which says policy “may need to be tightened” to bring inflation back “in a timely way”: one side of the trade-off, not a commitment. The RBA's updated forecasts are due on 3 November.

What markets make of it

The Nightly reported that market pricing for a rise on 3 November fell from 27% to 16% after Thursday's jobs figures, roughly a one-in-six chance. That's consistent with the “less than one in five” in our 16 October article. The same report said two- and three-year government bond yields of about 4.9% imply one more rise, to 4.85%, at some point.

Put simply, markets have pushed a rise further out but haven't ruled one out. These are market readings, not Loanworth forecasts, and they can change quickly.

What it means for your home loan

Plan for “maybe”, not “no”

Lower odds aren't the same as no rise. Budget as if another 0.25% could arrive and treat a hold as a bonus. In our 12 October article we estimated another full pass-on would add about $82 a month on a $500,000, 30-year principal-and-interest loan moving from 6.24% to 6.49%, or about $98 on $600,000 (Loanworth calculation, rounded, example only). Your figure depends on your lender, rate and remaining term.

Watch 28 October before you decide to fix

A hotter-than-expected inflation figure would strengthen the “don't go slow” side of the argument; a softer one would ease it. If you're weighing fixed against variable, it's reasonable to wait for that release unless a fixed rate already suits your budget. Check break costs and limits on extra repayments first.

Check your rate moved, and whether it should be lower

Some lenders were still passing on September's rise this week: RateSonar logged more than 440 home loan rate changes from 10 to 16 October, almost all rises. If you haven't reviewed your rate lately, now is a good time to compare. Look at the comparison rate and fees, not just the headline number; our 10 October explainer shows how. Refinancing has costs, so make sure the saving outweighs them.

Build the buffer either way

Extra money in an offset or redraw account helps whether rates rise or your income changes.

If you're struggling, talk to your lender early

Lenders must consider hardship requests, and calling before you miss a repayment usually leaves more options open. The free National Debt Helpline is on 1800 007 007.

Key dates

• Sunday 18 and Monday 19 October: RBA Assistant Governor Christopher Kent on News 24 (10:30am Adelaide time Sunday) and at a Commonwealth Bank conference (9:35am Monday).
• Wednesday 21 October, 9:00am Adelaide time: Deputy Governor Andrew Hauser at a Citi investment conference.
• Wednesday 28 October, 11:00am Adelaide time: ABS Consumer Price Index, September 2026.
• Tuesday 3 November, 2:00pm Adelaide time: RBA decision and Statement on Monetary Policy, with updated forecasts.

Related reading

• Unemployment just hit a five-year high: what it means for November (16 October)
• The RBA's minutes: what the Board said about more rises (14 October)
• Is another rate rise in November already locked in? (12 October)
• Advertised rate or comparison rate? (10 October)
• One rate rise, many start dates (8 October)

Sources: Reserve Bank of Australia, Anthony Brassil and Michele Bullock, “Overview of the 2026 RBA Annual Conference on Monetary Policy Trade-offs” (RBA Annual Conference 2026, Sydney, 8–9 October 2026; conference held under the Chatham House rule). The Nightly, Stephen Johnson, “Reserve Bank of Australia governor Michele Bullock tells closed conference aggressive hikes may be needed”, 16 October 2026 (release timing, market pricing, bond yields, Luci Ellis comments). Australian Bureau of Statistics, Labour Force, Australia, September 2026 (15 October 2026). Australian Bureau of Statistics, Consumer Price Index, Australia, August 2026 (30 September 2026; next release 28 October 2026). Reserve Bank of Australia, cash rate target overview (4.60%, effective 30 September 2026; next update 2:30pm AEDT 3 November 2026) and Coming Up calendar. RateSonar, home loan rate changes 10–16 October 2026 (as at 16 October 2026). Repayment example reused from Loanworth's 12 October November outlook (Loanworth calculation, rounded, example only).

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