Sarah Hunter, Reserve Bank assistant governor (economic group), has just started speaking to the Barrenjoey Economic Forum in Sydney.

The title of her speech is Understanding the Journey to Full Employment.

She is going over some familiar territory in explaining what the RBA actually means when it talks about "full employment".

[NB: it's talking about the maximum level of employment that's consistent with low and stable inflation. It's the level of employment where wages grow at a rate consistent with keeping inflation in check, after accounting for growth in productivity. It's the non-accelerating inflation rate of unemployment (NAIRU)].

Ms Hunter says the RBA thinks Australia's labour markets are still sitting at a level above full employment, which means it thinks there's still too much employment for the current state of the economy.

To that end, it expects unemployment to keep rising from here, until the economy falls back into better balance between supply and demand.

To make that judgement, the RBA looks at a range of labour market indicators.

See the graphic below.

The graphic compares the latest observation of key labour market indicators (blue dots) with observations of recent extreme labour market tightness from October 2022 (orange dots) and more typical labour market outcomes since the year 2000 (grey bars).

Those blue dots have all moved to the left of the orange dots, but many are still sitting at the "tight" end of the grey bars/typical range for each indicator.

Ms Hunter says:

"Our current assessment is that the labour market is operating above full employment but has moved towards better balance since late 2022.

"We expect the demand for labour to grow at a slower pace relative to the supply of labour in the coming quarters, gradually bringing the labour market into better balance. Our view is that some of this slowing in labour demand is likely to occur via a decline in average hours.

"We also expect employment to continue to increase, but at a slower pace than population growth. In this view of the outlook, measures of underutilisation – including the unemployment rate – are expected to continue rising gradually from here, before stabilising as the pace of growth in GDP picks up to be broadly consistent with the economy’s underlying trend pace of growth."

But she also notes that the RBA is not claiming to be infallible with its forecasts.

There may be a number of scenarios that could play out, including one in which unemployment rises much more quickly than the RBA expects.

And she's repeated a line from her colleague Andrew Hauser, RBA deputy governor, about the importance of humility.

"As my colleague Andrew Hauser recently pointed out, the outlook is highly uncertain, and we should be humble about our ability to predict the future.

"If we can be confident about anything, it’s that our forecasts will be wrong at least in some way. We therefore spend a lot of time thinking about how and why we could be wrong, including by considering scenarios where the economy evolves differently to our base case forecast and by continuously updating our assessment of risks as economic conditions change. This is particularly important given that changes in economic conditions can take time to flow through to changes in labour market conditions.

"It’s possible that employment growth slows, and the unemployment rate rises more quickly than we expect.

"As previously noted, various leading indicators, such as vacancies, are continuing to ease, suggesting further softening in the labour market from here.

...

"It is also possible that our assessment is wrong in the other direction. Conditions may be tighter than we expect, or demand for labour could grow more strongly than we anticipate.

"Forecasting the labour market is a difficult but important challenge. Our current assessment is that labour market dynamics haven’t fundamentally changed, although we have been surprised by some of the recent data.

"While our forecasts will almost certainly be wrong in some way, we remain humble about our ability to predict the future, and we continue to update our views based on the incoming data and our ongoing analysis.