The day of reckoning for the Howard Government has arrived as analysts tip that the Federal Reserve will adopt a rate rise of between 0.25% and 0.5%. It's a right hook to a government that has prided itself on its economic management and will be interesting to watch how they recover from this position.

To keep it in perspective, the cash rate will increase to 6 or 6.25% (blamed on the price of bananas) whereas in the early 90's the cash rate was over 16% (when our then Prime Minister was talking about a banana republic). The Australian economy is very strong bouyed by the resources boom in China and other trade agreements which are profiting handsomely and shouldn't be deterred too much by another rate rise.

The effect of this rate increase will hopefully achieve slowing spending but moreso the slow down of personal debt. The boom in property prices and the increasing stock market have resourced investors with increased equity. This increase, and the optimism generated from the boom, has made us all a little bit too greedy and spending has far outweighed savings.

What will be the fallout from another rate rise? The Reserve Bank is hoping that consumers will halt their borrowings and pull back from their over-exuberant investment strategies. If this works, the property bubble will eventually burst and we shall start to see house prices return to a more normal growth trend. This is great news for those who are wanting to get into the market and can't but bad news for those who have only just taken on a new mortgage.