The US Federal Reserve has lifted interest rates from extremely low levels to still very low levels, so why the care factor, especially half a world away in Australia?
The reason to pay attention is that the US remains the foundation of the global economic system and the world's key reserve currency.
As such, even small changes in US financial conditions have a significant bearing on currencies, bonds, shares and other financial assets, as well as economies, around the planet.
But is a 25-basis-point interest rate increase really that significant?
No, especially since global financial markets had priced in a near-100 per cent chance of it happening — today's rate rise announcement didn't move markets a jot.
Watch the dots
But there was one significant development that did shift markets — a change in what is known as the "dot plot".
It is a relatively new chart, that the Fed has only been publishing since 2012, which documents the committee members' expectations of where the official Fed Funds Rate will be in the future.
It gets published every three months and as recently as the last one in September the majority of people who vote on the Fed's interest rate policy were only expecting two more rate hikes next year.
The latest dot plot has that rising to three.
The significance of this is that traders have been used to a quarter of a century where inflation and interest rates have trended lower, and made financial decisions based on this.
In recent years, this belief has been best summed up by the phrase, "lower for longer", describing the expected trajectory of global economic growth, inflation and interest rates.
In recent weeks, the term "inflection point" has become more widely discussed.
This is the idea that global interest rates have reached their trough — that growth and inflation might start picking up, with interest rates following, starting in the US and gradually spreading around the world.
'Inflection point' could throw out investment plans
If we are indeed at this inflection point, it has potentially dramatic implications for all kinds of investments, including in Australia.
For one thing, many corporations, traders and individuals have made decisions over the past few years based on the assumption that interest rates will stay near record lows for years, possibly even decades.
As one example, people have recently bought 10-year Swiss, German and Japanese bonds (amongst others) that have a negative yield - that is you pay the government interest for the privilege of lending money to it.
You do this in the belief that a) at least you will get your money back at the end (these aren't Greek Government bonds after all) and b) that returns are so low elsewhere, and still falling, that it is best to lock in capital protection.
If global inflation and interest rates start rising relatively quickly, then the second premise is demolished.
By the time you get your ten-year investment back, not only will you have lost money through negative rates but the money you do get back will have depreciated in value due to inflation.
To cap it all off, if your money wasn't tied up, you could have been earning higher interest rates by investing elsewhere as rising interest rates bumped up returns.
Bond markets may seem totally irrelevant to you, but guess where a large part of the "conservative" allocation in your super fund is invested.
US rate rise could lift your mortgage rate early next year
To bring it even closer to home, literally, in a globalised financial system Australia's banks supplement their customer deposits with money raised from overseas investors.
If US interest rates do rise more quickly than people have been expecting then those investors are eventually going to shift their cash there to chase the higher returns.
As that happens, the Australian banks will have to offer higher interest rates to attract and keep enough money in their coffers to cover regulatory requirements.
If Australian banks are offering higher interest rates to depositors, they have two choices: cut profits or raise lending interest rates.
From your experience of how Australia's banks operate, which option do you think they will take?
So if you've bought property counting on 4 per cent variable mortgage rates to stick around for a few more years, it might be time to re-evaluate your financial position.
Because, even if the Reserve Bank keeps official interest rates on hold, if US interest rates keep going up, so will Australian mortgage rates, at least to some extent.
The New South Wales Government's TCorp sells state government bonds.
You'd think its chief economist Brian Redican, who used to work at Macquarie, would know a thing or two about what's happening with interest rates.
"I don't think there will upward pressure in the next couple of weeks but certainly in early 2017, if the Fed is talking about raising rates more aggressively than previously expected, we should expect to see those long-term borrowing rates continue to rise modestly," he told the ABC.
What is modestly?
"A quarter of a percentage point that is the sort of range we are anticipating."
So maybe hold back a bit on the Christmas pressies and Boxing Day sales to save up for a rate rise from your bank early next year.
Don't get too dotty
The good __news if you do own a negative yielding 10-year Swiss bond, or an extremely large variable rate mortgage on an Australian home, is that the Fed has consistently forecast more rate increases than it has actually implemented.
At one point, Fed members were predicting four rate increases in 2016. As we now know, we got one — and right at the end of the year at that.
Most market analysts still only expect two US rate rises next year, with markets pricing in just a 30 per cent chance of the Fed living up to its current plans for three.
However, there is also a chance that Donald Trump's fiscal stimulus program of tax cuts and infrastructure spending could seriously lift inflation, something the Fed hasn't fully accounted for yet in its forecasts, given the uncertainties around the program.
If that happens, it's entirely possible we might see more US rate rises than even the Fed's majority expects.
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