The world will change at 2 p.m. on Wednesday. What is not yet clear is whether the change will be for the better.
Barring an asteroid strike or outbreak of a supervirus, Janet Yellen and her team will issue a statement that afternoon, raising U.S. interest rates for the first time in nine years. The chief of the Federal Reserve has spent months preparing people for the announcement and by now markets would be shocked if Ms. Yellen and her colleagues did not bump up the federal fund's rate by a quarter percentage point.
Lots of people – including much of the financial community – think the hike is overdue. They view a trifling increase in borrowing costs as the necessary first step toward restoring the world economy to normalcy after years of ultralow interest rates.
However, it's not at all certain that the United States needs higher rates right now. Neither is it clear how markets will interpret a hike. The only thing that seems sure is that Wednesday afternoon will mark the point at which regulators officially wheel the world's leading economy out of intensive care and allow it to start standing on its own feet.
Some stumbles are to be expected. UBS warns that as much as $1-trillion (U.S.) in below-investment-grade debt could face problems as higher interest rates pinch companies' ability to repay loans.
For its part, Standard & Poor's predicts that 109 companies around the world will default this year. That would be the highest number since 2009 and is a sign of how vulnerable many businesses are to even slightly tighter credit conditions.
Critics of the coming hike, such as Nobel laureates Paul Krugman and Joseph Stiglitz, point out that higher interest rates are usually intended to cool an overheated economy.
Right now, the U.S. economy is anything but overheated. Growth is plodding; inflation is docile. Unemployment has plummeted, but broader measures of the job market are uninspiring and wage growth has been sluggish.
Then there's the high-flying greenback to consider. For currency watchers, the key issue is that a U.S. rate hike would widen the gap between the Fed and its international counterparts, such as the Bank of Canada, the Bank of Japan and the European Central Bank. Those central banks are holding rates steady or even reducing them.
The divergence means that higher U.S. rates would attract yield-seeking foreign investors to the U.S. dollar and boost the currency to even loftier levels. The danger is that the stratospheric currency might then price U.S. exports out of world markets and halt what modest momentum there is in the U.S. economy.
So why raise rates? The Bank for International Settlements (BIS) – a Swiss group that acts as an intermediary among central banks – argues that easy money has aided and abetted excessive risk-taking in financial markets. It thinks the Fed and other central banks should boost rates with vigour.
To be sure, the BIS attracts a certain type of crusty contrarian – people who admire the early, unreformed Scrooge and deplore his corruption by that notorious proto-Keynesian, Tiny Tim. But the BIS hardliners are backed by a chorus of mainstream economists.
One of them is Paul Ashworth at Capital Economics. He thinks inflationary forces are stronger than generally recognized. A temporary fall in prices for goods is masking soaring prices for services, he says.
Mr. Ashworth expects the Fed will have to raise rates rapidly to stay ahead of inflation. If his forecast is correct, the federal funds rate will soar from near zero now to nearly 3.5 per cent by the end of 2017.
That, however, raises more questions. One is whether the Fed can raise rates as easily as it has in the past. Prior to the financial crisis, it just had to sell bonds to drain financial reserves from the system and propel rates skyward.
These days, after several waves of quantitative easing, the financial system is awash with reserves. A bit of bond shuffling won't change anything. The Fed will have to rely upon relatively untested programs, such as a "reverse repo" mechanism, to move rates upward.
If everything works as planned, there's still the question of how markets will react. Assuming the Fed statement says encouraging things about the recovery and underlines the slow, gradual nature of future rate increases, stocks could jump.
On the other hand, if the statement hints at a faster-than-expected pace of future rate increases, or outlines additional concerns, the market could react violently.
It's a toss-up of which view will eventually prevail. But we should begin to have an idea by 2:30 Wednesday afternoon.
Ian McGugan