Friday, March 3, 2017

US rates may rise this month; Snapchat earns millions for a school; The implications of ageing

1 US rates may rise this month (BBC) A rise in US interest rates could be "appropriate" as soon as this month, according to the chair of the US Federal Reserve. Janet Yellen said rate setters will evaluate whether employment and inflation remain in line with expectations when they meet in March.

Ms Yellen also suggested the central bank was likely to raise rates more quickly than over the past two years. Rates went up by 0.25% in December, only the second increase in a decade. The benchmark interest rate, the Federal Funds rate, now stands at 0.5%-0.75%.

The Federal Open Market Committee (FOMC), which sets rates, has to ensure that the Federal Reserve achieves its goal of maximum employment and price stability. Ms Yellen said the US economy had exhibited "remarkable resilience" in the face of adverse shocks in recent years" with the jobs market strengthening and inflation rising towards target.

However, she added, it was not a "preset course" and FOMC "stands ready to adjust its assessment of the appropriate path for monetary policy if unanticipated developments materially change the economic outlook".

The Fed expects to raise rates three times this year. When it published its economic forecasts for the next three years in December it suggested that the Federal Funds rate may rise to 1.4% in 2017, 2.1% in 2018, and 2.9% in 2019.

2 Snapchat earns millions for a school (Rupert Neate in The Guardian) The parents of pupils at a Silicon Valley school were sent an unusual letter this week – telling them the school had made at least $24m in profit from a $15,000 punt on messaging app Snapchat.

Five years ago a Saint Francis school parent Barry Eggers, a venture capital investor, had convinced the private school in Mountain View to invest in Snapchat after watching his children become obsessed with the messaging service based on disappearing photos.

Eggers knew he wanted to invest in the promising company, and in a stroke of remarkable generosity he decided to invite Saint Francis to join him. His daughter and son confirmed that their school friends were Snapchat fans.

Eggers was thus sold on Snapchat. He tracked down one of its co-founders Evan Spiegel, and Eggers’ Lightspeed Venture Partners became the first investor in the app. His firm put up $500,000 in funding, but split the deal to allow the Saint Francis school to put in $15,000.

The school’s investment delivered about 2.1m Snapchat shares. It sold about two-thirds of them for $17 each as part of the company’s public float in New York this week. The share sale netted the school’s endowment fund $24m, and the rising price of Snapchat’s shares mean its remaining shares are still worth a further $18.5m.

The proceeds from the share sale would be used to fund “work towards realising the bold vision and goals” of the Catholic school’s strategic plan, which includes expanding financial aid for poorer students. The school’s fees are $17,370-a-year. In 1996 it made a $2.1m return on a $25,000 investment in Advanced Fibre Communications, a telecom services company which is now part of Tellabs.

3 The implications of ageing (Khaleej Times) While many advanced economies have a high share of the 65-plus age group in their population, emerging markets currently represent two-thirds of the world's elderly. The UN forecasts that the share of those aged 65 and above in emerging markets will rise to almost 80 per cent by 2050.

China already has 131 million seniors, more than double the combined older generations of the three most-aged economies in the world - Japan, Italy and Germany. South Korea and Singapore are set to become "hyper-aged" societies (defined by the UN as those in which seniors make up more than 21 per cent of the population) by 2030. Thailand and China will become hyper-aged by 2035.

Asia and other emerging-market regions are getting older faster than previously has been seen. It will take China and Singapore 25 years to progress from an ageing society to an aged society. By comparison, it took the UK 45 years, the US 69 years and France 115 years.

The acceleration of ageing means some societies will get old before they reach high-income status. This could create challenges, including limiting their ability to move up from middle-income status. Thailand and China are likely to face this challenge in the next few decades.

The macroeconomic impacts of ageing on an economy are varied, the most direct and significant of which is through labour supply. Standard Chartered estimates that after decades of positive contributions to GDP growth, demographics will become a drag by 2020 for China, Korea, Hong Kong and Thailand and by 2025 for Singapore.

Demographic trends are challenging Asia's traditional family values system. China is facing a "4-2-1" phenomenon, whereby an only child is responsible for two parents and four grandparents. In China, the nationwide pension system may run a deficit as early as 2030. Policies to raise fertility rates have been widely adopted in Asia to tackle the effects of ageing. They have so far proven unsuccessful.

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