Key Highlights

  • The August forecasts show unemployment edging up to 4.8% by 2028 while employment keeps growing.
  • Bullock argued that the labour market remains “a little bit tight” and that a higher unemployment rate need not mean job losses.
  • Unemployment was 4.6% in August, and the September CPI on 28 October comes ahead of the 3 November decision.

The RBA's own forecasts show unemployment drifting higher as tighter policy works through the economy, but the Governor has stressed that a rising jobless rate is not the same as people losing their jobs.

Raising interest rates to bring down inflation works, in the Reserve Bank of Australia's (RBA) own description, by cooling activity. Governor Michele Bullock put it plainly after the Monetary Policy Board lifted the cash rate target by 25 basis points to 4.60% on 29 September 2026: "Today's increase in interest rates is needed to slow the economy and return inflation to target."

A slower economy usually means softer demand for workers. That raises an awkward question for anyone watching the labour market: is a higher unemployment rate simply a by-product of the RBA's strategy, or something it is counting on?

The RBA's published material does not describe higher unemployment as a goal. Its forecasts, however, and the Governor's comments at her media conference, make clear that the Bank expects the labour market to loosen further over the forecast period, even as it works to bring inflation back to target.

Where the jobless rate stands now

The unemployment rate rose to 4.6% in August 2026. The minutes of the 28–29 September meeting note this happened alongside higher participation — that is, more people either working or looking for work.

Bullock placed the August figure in a longer context. She said unemployment had risen from 3.5% over the past couple of years, while over a million jobs were created over that time. Her point was that the two can happen together: "a rise in the unemployment rate does not necessarily mean job losses."

The mechanics are straightforward. The unemployment rate is the share of people in the labour force who are looking for work but do not have a job. If more people join the labour force than there are new jobs to absorb them, the rate can climb even while total employment grows.

That distinction matters for how the trade-off is understood. A rising rate in an economy still adding jobs is a different situation from one in which firms are shedding staff in large numbers.

What the forecasts assume

The RBA's August 2026 Statement on Monetary Policy set out where it expected unemployment to go. Those forecasts were finalised on 5 August, before the September rate rise, and were based on a cash rate assumption of 4.4% for December 2026 and 4.5% through 2027 — below the current 4.60%.

The forecast quarterly unemployment rate was:

  • 4.4% in June 2026 and 4.5% in December 2026
  • 4.6% in June 2027 and 4.7% in December 2027
  • 4.8% in June 2028 and December 2028

A broader gauge of spare capacity, hours-based underutilisation, was forecast to rise from 5.6% in June 2026 to 6.2% by December 2028. Employment growth, though, stays positive throughout the forecast period, ranging between 1.1% and 1.4%.

The August monthly reading of 4.6% already matched the level forecast for the June quarter of 2027. Caution is needed in reading too much into that comparison: the forecasts are quarterly, and the September minutes stated that "considerable caution is warranted when interpreting the current official labour force data."

Why the Board still calls the market tight

If unemployment is rising, why did the Board judge another rate increase necessary? Part of the answer lies in where the labour market started. Bullock said: "the unemployment rate is still quite low historically, and we still think the labour market is a little bit tight."

The post-meeting statement said "Labour market conditions have eased broadly as expected in recent months" — in other words, the loosening so far had been anticipated rather than a surprise. The statement also noted that capacity pressures remain.

The RBA's diagnosis of inflation leans heavily on those pressures. "Inflation is too high and has been driven by domestic capacity pressures," Bullock said. The minutes record that unit labour cost growth was above the level consistent with the inflation target, though driven mainly by weak productivity rather than strong wages. Bullock was emphatic that "there is no wage price spiral going on in Australia."

So the trade-off, as the RBA presents it, is not about suppressing pay rises. It is about easing overall demand in an economy where, in the Bank's judgement, demand is pressing against what the economy can supply.

How heavily the downside was weighed

The minutes show the Board did consider the cost to activity. Members weighed a 25 basis point increase against holding the cash rate steady, and the arguments for holding centred on downside risks to activity. Members judged those risks to be modest, and "all members judged that it was appropriate to increase the cash rate target by 25 basis points".

Asked about recession, Bullock said: "That is not our central base case at this moment." The minutes add that leading indicators pointed to broadly stable labour market conditions in the near term, with some job advertisement measures strengthening a little.

Bullock also acknowledged the human dimension of the decision. "Those who have mortgages, yes, this clearly impacts them and it hurts them," she said, and in another remark she said: "They're seeing real wage cuts."

The other side of the ledger, in the RBA's framing, is the cost of letting inflation persist. Bullock pointed out that inflation has been outside the 2–3% target for six years, aside from a brief return inside the band in 2025, and spoke of the need to "stop expectations for high inflation from becoming embedded in price-setting decisions across the economy".

The bottom line

The RBA does not say it wants unemployment to rise, but its August forecasts — prepared before the September rise — show the jobless rate edging up to 4.8% by 2028 while employment keeps growing. Bullock has argued the labour market remains "a little bit tight" and that higher unemployment need not mean job losses. Whether the trade-off shifts will depend on incoming data, including the September CPI scheduled for 28 October, ahead of the Board's next decision, scheduled for 3 November. As Bullock put it: "Will it be enough? I don't know."

The projected unemployment rate is an economic forecast, not an unemployment target adopted by the RBA.