“In the last three decades there have been three easing cycles that started off with a cut of more than 25 basis points,” Martin and Kenny said. “On each of these occasions (Black Monday October 1987, Dotcom bust January 2001 and the Global Financial Crisis September 2007), there was concern about a highly disruptive financial market event leading to a sharp recession. This is not a worry now.”

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The pair said the rise in unemployment to 4.1 per cent in June reflected a slowdown in hiring rather than job layoffs, which remain near record lows.

Westpac chief economist Luci Ellis said the Fed’s rate cuts would have little impact on financial markets, which have already priced it in, nor the decision of the Reserve Bank of Australia, but it would affect the global economy.

“The world economy is looking soft at the moment,” Ellis said. “We have tight policy right around the world, and, importantly, China is looking a lot weaker than it was a little while ago. Commodity prices are lower, and that matters for [Australian] export prices, and global demand is likely to be softer than it perhaps has been in the immediate aftermath of the pandemic.”

Financial markets have fully priced in an RBA rate cut by Christmas, in defiance of governor Michele Bullock’s warning that interest rates would not fall this year because inflation is too high. Macquarie Group chief executive Shemara Wikramanayake on Friday said she did not expect the RBA to cut rates from its current level of 4.35 per cent until March next year.

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