Janet Yellen's clout today is especially hefty: Don Pittis

If you live in a cave and survive on nuts, berries and the odd roasted squirrel, what U.S. Federal Reserve chair Janet Yellen says today won't make much difference to your life. At least not right away.

But for the rest of us, from Saskatoon to Shahjahanpur, what she says will matter. The powerful Yellen may talk softly, but she carries an enormous stick.

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Of course the U.S. central bank always has a certain amount of clout. But there are reasons that Yellen's pronouncements today on interest rates may be more newsworthy than usual.

The first thing is the way Yellen's message will be presented. Even when the Fed issues a written statement, market analysts go over the wording with a fine-toothed comb, interpreting subtle changes in wording.

Like the printed statement, Yellen's speech will also be carefully penned, but emphasis can lend special meaning to a prepared text.

Most revealing of all is the question and answer period, when Yellen stands up and, in the glare of camera lights, faces the slavering wolves of the financial press who will try to tempt her into tiny indiscretions.

Adding to the import of today's speech and news conference is the timing. It may be an illusion, but it feels as if the world is currently on the knife edge of change, what mathematicians call an inflection point, where things, once trending one way, suddenly begin trending another.

In the fullness of time we may find out we were wrong, but today part of Yellen's impact will be the sense that change is afoot.

Of course the reason so many people will be paying attention is that there is a lot of money riding on the outcome. In some cases it is like a horse race where bets have been placed. But you don't have to be an intentional financial gambler to be significantly affected.  

Big losers

One of the big losers in the event of an interest rate rise will be the developing world, according to International Monetary Fund boss Christine Lagarde.

Of course Yellen would not have to actually raise rates to hurt the world's poorer countries, just imply that a rate rise is coming sooner rather than later. The "taper tantrum" sent private interest higher when the Fed merely hinted at an end to quantitative easing.

The logic, according to Lagarde, is that the promise of higher returns in the United States would send "hot money" — internationally domiciled cash looking for the best possible return — pouring out of developing world investments and into investments in the United States and Canada.

IMF economists also worry hints of a rate rise will push the U.S. dollar even higher, and that money borrowed in dollars by developing countries will become a heavy burden and harder to repay. The impact on places like India and Brazil could be reduced spending and investment, resulting in a weaker economy and fewer jobs for ordinary people

"We believe that a rate hike would be better off in early 2016," said Lagarde earlier this month.

Other experts disagree, saying leaving rates too low too long will damage the world economy and lead to inflation.

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In other parts of the world, including Canada, rising rates would mean an increase in the cost of lending. In the bond and mortgage market, interest rates have been tumbling steadily for years. Hitting the inflection point would change all that.

Costlier mortgages

Here in Canada a heavy burden of consumer borrowing would mean the cost of carrying loans was on the way up. That would leave consumers with less to spend and could stall Canada's effervescent housing market, perhaps leading to price declines.

For Canadians with investments in stocks and bonds, higher rates are harder to read. Existing bond portfolios would fall in value. On the other hand, future bonds would provide better returns. 

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As Yellen has warned in the past, low rates have pushed stocks higher than their earnings warrant, leading to fears a rate rise would have the opposite effect. Then again, the prospect of a U.S. recovery could mean optimism about future returns, and stocks are well known to price the future more than the present. 

 In Canada, a weaker loonie could stimulate exports.

Of course, Yellen knows all this better than we do. She knows the whole world is listening. After nearly five years as the globe's most influential central banker she has learned a lot about the impact of her words and how to avoid unintended surprises.

Maybe this time she will decide to play her cards close to her chest and leave the world guessing.

Perhaps those of you who will shortly be sitting down to your roast squirrel dinner were right not to pay attention. But some of us won't miss a word.

Follow Don on Twitter @don_pittis

​More analysis by Don Pittis