With the exception of the US and possibly Japan, interest rates have peaked this cycle. The worldwide economy is clearly slowing and the fat lady is singing in many countries.

Europe didn’t even have a tightening cycle and the odds are huge that the UK is through. Housing is weakening in some New Zealand areas and Bloomberg is reporting Australia’s Central Bank Signals Rates Are on Hold.

Of course that leaves the US alone in central bank tightening. They have perhaps another two hikes at a “measured pace” until housing breaks but good. Once that happens the easy prediction is the FED will start cutting rates at a pace that is decidedly “not measured”.

Japan is on a different cycle actually and is just now coming out of deflation. Japan may start hiking just as everyone else is finished, but it is also possible that the slowing worldwide economy tosses Japan right back into a recession.

At any rate, according to the above article Australia’s central bank said inflation pressures have eased and economic growth is slowing, signaling it is unlikely to increase interest rates again this year. The Australian dollar fell.

Risks of a jump in inflation are “not as strong as they had been earlier in the year,” the Reserve Bank of Australia said today in its quarterly statement on monetary policy released in Sydney. The bank dropped comments from previous quarterly statements in which it said higher rates may be needed.

The bank’s comments and a report showing job advertisements fell to a two-year low in July reinforced expectations Governor Ian Macfarlane will keep borrowing costs unchanged until at least March 2006.

The A$800 billion ($612 billion) economy, in its 14th straight year of expansion, grew 1.9 percent in the first quarter from a year earlier as home building and business investment declined. That’s less than half the 4.1 percent pace in the year-earlier quarter and compares with 3.6 percent growth in the U.S. economy in the same period.

“Domestic demand has slowed from its previous rapid pace and is now on a more sustainable trend,” the bank said. Consumers are “borrowing less and increasing their spending less quickly than they were a year or two ago.”

An index measuring retail sales fell 0.3 percent in July, the fourth consecutive drop, Cashcard Australia Ltd. said today. The index is based on electronic card transactions in the month.

As for “Domestic demand has slowed from its previous rapid pace and is now on a more sustainable trend”: I think “sustainable downtrend” is a better description. What is happening should be obvious. A housing bust has sapped consumer spending. It is happening right now in the UK as well, and it lasted for 18 years in Japan. The US is next up in the queue.

Mike Shedlock / Mish/