Some highlights of this past week’s news in business
The Federal Reserve Bank voted to raise the federal-funds rate a quarter percentage point, bringing it to a new range of 0.75% to 1.00%. This decision came as a result of steady economic growth and job gains. This is also just the third hike in interest rates in the last decade. The prior two adjustments occurred in December of 2015 and December of 2016. The recent hikes are evident that the FOMC are more confident in the strength of the U.S. economy and its resistance to shocks.
During the announcement, Federal Reserve Chair Janet Yellen stated: “The simple message is the economy is doing well.”
The implications of this hike include increased costs of borrowing for consumers and increased costs for consumers who have taken out home equity loans as lenders are expected to increase their prime rates to 3.75% – 4.00%. The FOMC predicted there would be two more rate increases during 2017 and three increases in 2018, placing the borrowing rate for banks to between 1.25-1.50% and 2.00-2.25% in 2017 and 2018 respectively.
- Mulesoft – a software company that provides integration software for connecting applications, data, and devices – went public on Friday and opened at $24.25, a 46% premium to its IPO price of $17. The company closed at a price of $24.75, giving secondary market investors a shallow return.With most IPOs, institutional investors and high-net-worth individuals have exclusive access to IPO prices, $17 in this case. Therefore, while ordinary investors only received a 2.1% return, this prime group of investors experienced nearly a 45.6% return.While the economy has seen strong signs of growth, investors should be wary of the “IPO Pop.” The highly debated messaging app Snapchat went public just two weeks ago at above $24. It currently sits at $19.54 (Friday close) demonstrating the volatility that IPOs can experience after their initial 24-hour pop.
- GoPro announced that it would be letting go of 270 employees ahead of Q1 earnings report. The action-camera company’s less than expected revenue during Q416 coupled with the late launch of their drone product, Karma, caused some banks like Goldman Sachs and Citi to adjust their position on the company to “sell.”On Wednesday during an unscheduled investor call, GoPro announced that it would be cutting operating costs by $200 Million in order to return to profitability during 2017.
Sports & Entertainment
The NCAA March Madness tournament began this week with 68 championship hungry teams competing for a spot in the Round of 32. The tournament will be broadcasted by CBS and Time Warner Inc’s Turner Sports. While many employees may have spent hours doing research to create their “perfect” brackets, employers calculated the loss in productivity the basketball tournament would deliver.
A new report by Challenger, Gray & Christmas estimated that American businesses will lose up to $2.1 Billion dollars in productivity with 81.5 million workers spending at least an hour each on their brackets along with time spent watching tournament games at work.
The report summarized that as the economy has grown, more workers have received higher wages, which has increased the cost of distracted workers for employers. On the other hand, Challenger noted that companies should use the tournament as an opportunity to improve worker morale as opposed to banning office pools. The research firm later added that these decisions could aid in long-term employee retention and overall benefits towards companies’ bottom lines.
Independent Business Blogger