TERRY MCCRANN

IN just over two weeks a meeting in Washington could quite literally, significantly and immediately change your world. It is absolutely certainly going to ‘clarify’ it.

No, it won’t be taking place in or around the Oval Office – or even up the road in the Congress building on Capitol Hill – but in the other direction, more like an old-fashioned stone’s throw as opposed to a 21st century tweet’s throw from the White House, at the Federal Reserve building.

Fed head Jerome Powell will most likely lead the Fed to raise its official interest rate for the third time this year – further widening the gap above our Reserve Bank’s equivalent official rate.

Our rate is at 1.5 per cent (and ain’t going anywhere); if the Fed moves it will go to the 2-2.25 per cent range. For starters this would put immediate – do I really need to add, upward? – pressure on our local bank home lending rates. And on those of one bank in particular.

The increases that three of the big banks have recently announced were essentially a consequence of the two earlier Fed official rate rises this year.

The banks get around 40 per cent of their money from global (local and international) capital markets; and the rates they pay are essentially driven by those US rates and their flow on into longer-term global bond rates.

So what exactly would that ‘one bank’ – do I really need to identify it, NAB? – do, if that happened? You could rule out one of the three choices: nothing.

It would either thump its borrowers with a full ‘catchup’, rendering very brief its contemporary ‘breaking up with the other big banks’ exercise, or retain some discount for its borrowers.

This is just one of the impactful consequences of that coming pivotal US Fed meeting. But first, it’s important to understand the range of possible outcomes.

The Fed could decide to leave the rate unchanged, in the process (absent some catastrophe) making all-but certain a rate rise at its final meeting in December. Or it could hike at both meetings.

There is a third meeting, in early November just after the Melbourne Cup (and our RBA Cup Day meeting). But any rate moves would come at either the September or December meetings, which are much bigger affairs and after which Chairman Powell holds a press conference.

So, we could get a rate rise in September or December. We could get a rate rise at both.

Or, we could get no rises at either. That is most unlikely and if it happened, be afraid, be really afraid.

It would not only completely derail any sense of certainty in global markets but signal something had either gone dramatically wrong or was building to go dramatically wrong in either the US economy or US financial markets or both.

For starters, a rate rise out of the Fed in two weeks would likely unleash a barrage of tweets out of the White House down the road. President Trump has made it blindingly clear he thinks rate rises could cruel his strong economy.

But it is precisely because the US economy is so buoyant – it could reach Trump’s 4 per cent growth rate, just as we topped our 3 per cent target – and unlike in Australia, inflation and prices are starting to pick up pace, is both necessary and fundamentally unthreatening.

To the US, that is. It is a mix of threatening and challenging to just about everyone else.

A US rate in two weeks will both signal that the US economy is strong but also threaten to take some of the pace off it.

It will be seen as causing difficulties for other countries and other monetary authorities – threatening to suck yet more money out of those economies back in to the US. It could send out dollar into the 60s against the US dollar (if we weren’t already there by then).

I suggest that rising US rates – both the Fed policy rate and longer bond rates – are much better for the global environment than the opposite. They would certainly deliver greater clarity.

But they make everything – investments, trade, capital flows, currency values, interest rates, asset values - more fluid.

WE COULD GET A RATE RISE IN SEPTEMBER OR DECEMBER. WE COULD GET A RATE RISE AT BOTH. OR, WE COULD GET NO RISES AT EITHER.