The Reserve Bank board's post-meeting statement was a short, sharp kick in the teeth to millions of Australians struggling with higher mortgage repayments.
Many analysts thought the bank would either openly state rates had probably peaked, or at least play a dead bat and be neutral and data dependent.
Instead, it chose to emphasise that "a further increase in interest rates cannot be ruled out", even as it noted the path of interest rates "will depend upon the data and the evolving assessment of risks".
The one-page post meeting statement, the 55-page quarterly Statement on Monetary Policy (SMP) and the RBA governor's press conference were all consistent with the RBA's current assessment of risks firmly being that inflation is the bigger threat than a rapidly slowing economy.
"Returning inflation to target within a reasonable time frame remains the board's highest priority," the bank noted in its post-meeting statement.
"This is consistent with the RBA's mandate for price stability and full employment."
Explained further in the SMP, the bank's view is the biggest risk of the economy being even softer than the RBA's freshly downgraded forecasts — which already have the economy perilously close to recession — is mainly higher unemployment than the peak rate of 4.4 per cent it currently expects.
On the other hand, it views the risks of inflation taking longer to come down as resulting in both higher prices and unemployment.
Reserve Bank governor Michele Bullock's response to a question on the outlook for interest rates kept to the script.
"If the risks on the downside present themselves, then we have the option of cutting interest rates," she responded.
"If the risks on the upside eventuate, then we might have to look at whether or not we need to increase again.
"But I think the point is that we need to make sure that we don't have to backtrack on inflation. That inflation doesn't get away."
Is the RBA lagging behind?
But there is a very lagged effect of interest rates, where a change can take well over a year to fully affect the economy.
That happened on the way up, where inflation peaked seven months after the RBA started hiking rates, and it potentially applies even more so on the way down, if rate cuts arrive too late to prevent business closures, lay-offs and mortgage defaults.
As highlighted in the 1990s recession, the scarring from unemployment and insolvency can take individuals years to recover from. Some never do.
And it's not like the RBA isn't aware of some considerable, rapidly looming risks.
"Around 5 per cent of borrowers are currently estimated to have insufficient income to meet their most essential expenses and mortgage payments, and so are drawing down on savings or finding other ways to increase their income or reduce expenditure," the bank noted in its SMP.
That's a couple of hundred thousand households currently spending more than they earn, even after they've chopped out all of life's luxuries.
"Some of these borrowers are at risk of depleting their buffers within six months, which would see them fall behind on mortgage payments," the RBA added.
Strangely, the RBA's communications completely ignored December's employment and retail sales figures, which were some of the worst monthly drops in history.
For an avowedly data dependent central bank, that seems an intriguing omission.
Most economists believe that rapidly changing seasonal factors and some statistical numberwang skewed the December numbers, but surely some analysis from the RBA explaining why it dismissed those figures to stick with a rate hike bias wouldn't go astray?
Instead, there was extensive analysis of full employment and the NAIRU – the non-accelerating inflation rate of unemployment – concluding that too many Australians still have a job for inflation to come back within the 2-3 per cent target range.
Veteran financial journalist Michael Pascoe asked Ms Bullock, "Do you have an idea of what full employment is?"
"We have an idea that full employment is where we have employment at a level, unemployment at a level, that inflation is low and stable in the band."
In other words, we'll know once we get there.
History shows the problem is that by the time central banks realise they've got there, the economy is often in recession.
Betashares chief economist David Bassanese warned that it looks like the economists have now more completely taken control of the Reserve Bank, and that may not be a good thing.
"It's very early days, but there's a risk that Treasurer Jim Chalmer's new reforms may usher in a more technical and hawkish RBA with a less of a 'real world' feel for how the economy is operating," he noted.
As former US Federal Reserve vice-chair and monetary policy guru Alan Blinder observed in his book, Central Banking in Theory and Practice, there is a certain degree of art to setting interest rates, which is precisely why we appoint a board to do it and don't just leave it to economic models to spit out a mechanical answer of hike, cut or hold.
Interest rates have done what they can
A key reason why the RBA says it is still more likely to hike rates than cut them over the coming months is the continued "output gap".
"The level of demand continues to exceed the economy's ability to supply goods and services," the SMP noted — although the output gap is, like the NAIRU, something that can't be directly observed and must be estimated.
Yet, even if the bank's assessment of the output gap is accurate, it's not clear even higher interest rates would do a great deal more to close it, given where the demand is coming from.
"Demand has been supported by strong growth in business investment, public sector spending and spending by international students and tourists," the SMP observed.
Only the first of those is very directly affected by rate rises.
Other sources of inflation over the past couple of years — such as grocery prices, insurance, electricity and rents – are similarly immune to rate pressures.
On the other hand, retail sales figures confirm that we've slashed spending on household goods and electronics, and there's increasing signs we're eating at home a lot more too.
It's pretty hard to cut back on the essentials of life, and squeezing discretionary spending to death to make up for the inflation interest rates can't really control doesn't seem like a great solution.
Perhaps today's multi-pronged communications blitz was an all-out attempt to jawbone down any talk of rate cuts, head off any further real estate frenzy and keep consumer wallets shut for a few more months until the RBA is sure its inflation-slaying job is done.
By talking up the risk of another rate hike, the RBA hopes it won't have to actually do one.
The data dependence does give it an out if it turns out December's horror numbers weren't a statistical blip.
But if the RBA's officials genuinely believe all of what they said today, there's a real risk it will repeat its mistake of keeping rates too low for too long as inflation took off by keeping them too high for too long as the economy suffocates.
