A couple of months ago economists and futures punters were 100 per cent sure the Reserve Bank would cut interest rates by February at the latest; now they’re only 35 per cent sure, and shrugging.

Two of the big banks are now saying May.

Interest rate predictions are among the least useful things in finance because nobody really has a clue. That’s never been truer than it is now.

There are a lot of reasons for humility when thinking about what might happen to interest rates, and to the economy generally, but two stand out at the moment: Immigration and Donald Trump. Neither is remotely predictable, or very controllable.

Numbers game

The surge in immigration since the pandemic has boosted demand, especially for rental housing, and is partly responsible for inflation and high interest rates.

The government wants to bring down net overseas migration and is predicting it will fall this financial year by 200,000, or 43 per cent, to 260,000.

So far, not so good. In the September quarter, net permanent and long-term arrivals – not exactly the same as net overseas migration, but a rough, early approximation – was 125,470.

That means we’re heading for another 500,000 extra mouths to feed this year, the same as the record level of 2022-23.

In order to hit the government’s forecast, net arrivals in the rest of the year need to be no more than 65,000 per quarter – half what they were in the first quarter.

Risk of recession

There is no chance of that happening. That’s largely because most of those arrivals are already here, on temporary or student visas. And there is a backlog of onshore student visa applications of more than 110,000, which is becoming a serious political problem for the government.

With unemployment of 4.1 per cent, universities desperate for foreign students and a record-low natural fertility rate of 1.5 births per woman, there is very little chance of the government meeting its forecast of 260,000 immigrants in 2024-25, and absolutely no chance of the Coalition getting it down to the 160,000 that it proposes.

To do that would require a recession, and possibly cause one anyway.

And a recession is what would be needed to cut interest rates in the first half of next year – that is, either big cut in immigration or a big increase in unemployment, or both.

All eyes on Trump

Apart from that, the immediate future of the Australian economy is in the hands of Donald Trump, and whether he produces a trade war with China, and/or crashes the US economy.

Stockmarkets are euphoric about Trump’s victory, apparently thinking he will stimulate the economy with cuts in tax and regulations, and produce another year of “American exceptionalism”.

But on the other hand, everyone’s talking about whether the “guardrails” will hold, and stop him from being crazy.

I reckon you’re in trouble if you’re talking about guardrails.

The picks for members of cabinet so far have been wildly incompetent, even for Trump, apparently chosen for their loyalty to the Don, or because they’re on TV. Experience not only not required, but a disadvantage.

Choice picks

TV star Dr Oz and anti-vaxxer Robert F Kennedy Jr to run the American health system, Fox TV host Peter Hegseth as defence secretary, fracking business CEO Chris Wright as energy secretary (as the Financial Times put it, “wildcatters” will be in charge of US energy policy), accused sex and drug trafficker Matt Gaetz as attorney general (he has now withdrawn, replaced by a fanatic named Bondi), former CEO of World Wrestling Entertainment Linda McMahon as education secretary, and so on.

If they get confirmed – not a given, but likely, and anyway, if not them, people like them – you would think that ineptitude and disarray in government is more likely than calm professionalism.

Trump’s pick for head of the Office of Management and Budget, Russell Vought, is competent, but has spent decades dedicated to the removal of presidential guardrails: “What we’re trying to do is identify pockets of independence and seize them,” he said in an interview last year.

DOGE dogma

Oh, and Elon Musk and Vivek Ramaswamy will be running something called the Department of Government Efficiency (DOGE, not department, and was the Dogecoin crypto issued 11 years that Musk promoted a forerunner of this?) to cut the size of government.

Musk says he wants to cut $US2 trillion from the government and Ramaswamy has talked about sacking 75 per cent of government employees, based on odd and even social security numbers or something.

The US federal budget is $US6.75 trillion, so Musk would be cutting spending by 30 per cent. The US government’s payroll is $US271 billion a year, so a 75 per cent staff cut would save $US203 billion, which would be a bit more than 10 per cent of Musk’s number.

As the UK Tories have learnt and forgotten a few times, government austerity sounds like a good idea but can be economically and politically catastrophic.

The idea that government represents a dead weight on society and a vast waste of money, and that if it’s curtailed a million flowers of enterprise will bloom, is a fantasy promoted by people interested in paying less tax, or those they have brainwashed.

Most people actually like the schools, libraries, roads, hospitals, doctors, welfare and police that governments provide.

China factor

And then there’s the prospect of a trade war between the US and China.

If Trump does put a 60 per cent tariff on all imports from China – and he says he intends to keep all promises – then the question for Australia, and the world, will be what China does about it.

There are two basic options: Defence and offence. That is, devalue the renminbi as it did in 1994 and 2008 (defence), or attack the US by banning exports to it and driving commodity prices higher and imposing inflation.

Obviously, Australia would prefer the latter response, or better still that Trump doesn’t actually do what he has promised.

That’s actually what most economists are predicting: The consensus seems to be that the average US tariffs would go from 3 to 4 per cent today to 7 to 8 per cent, not 20 per cent, and the tariff on China would be 20 to 22 per cent, not 60.

We can only hope, but in any case, it’s going to be a rocky four years.

But what we shouldn’t expect are rate cuts before next Easter, and possibly not before the 2025 grand final.

Alan Kohler writes weekly for The New Daily. He also writes for Intelligent Investor, and presents finance reports on ABC News