Fed Enters a New Holding Pattern on Interest Rates

Jessica Mendoza (0:00)

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Alex Ossola (0:23)

The Federal Reserve holds rates steady and offers little clarity on when it might start cutting again. Plus, a new wave of AI startups are landing billion-dollar valuations, even though they don't have a product.

Kate Clark (0:35)

All of this just points back to how much excitement there still is for AI development, even though there has been more skepticism in the market, there is more talk of a bubble. That has not stopped investment from climbing even into these extremely risky businesses like the Neolabs.

Alex Ossola (0:51)

And two Border Patrol agents who shot Alex Pretti and the ICE officer who shot Renee Good in Minneapolis have been put on leave. It's Wednesday, January 28th. I'm Alex Ossola for the Wall Street Journal. This is the PM edition of What's News, the top headlines and business stories that move the world today.

The Federal Reserve held interest rates steady today, entering a new holding pattern after three straight cuts. Officials kept language that's typically suggested an openness to further moves without suggesting any hurry to make them. In a press conference after the decision was announced, Chair Jerome Powell offered little insight into what's next.

Jerome Powell (1:32)

The economy is growing at a solid pace. The unemployment rate has been broadly stable, and inflation remains somewhat elevated. So we'll be looking to our goal variables and letting the data light the way for us.

Alex Ossola (1:44)

For more on the Fed's decision and what went into it, I'm joined now by WSJ investing columnist Spencer Jakob. Spencer Powell said that the Fed chose to keep rates steady as inflation and employment are, at least for the moment, in a sort of balance. What would it take for it to start cutting rates again?

Spencer Jakab (2:00)

Well, we'll have a couple of more jobs reports before the March meeting. They'd likely have to see something dramatic or see something elsewhere in the economy. For example, manufacturing surveys could be very soft. Industrial production, durable goods orders, things like that. But we have not seen signs of that so far this year.

Alex Ossola (2:18)

Among Fed officials for this month's decision, Powell said there was broad support for cutting. But two officials, both of whom were appointed by President Trump, said that they wanted to cut this time around. What does that show us about how the Fed is functioning as a body?

Spencer Jakab (2:33)

It shows us that it's functioning fairly well because there is consensus. The two officials that dissented, each of whom asked for a quarter point cut, were Stephen Myron and Waller, who's one of the four candidates to be Fed chair. You know, you're not going to get the job if you're not seen playing ball because Trump is explicitly calling for Fed rate cuts. So no surprise there at all. It counts as consensus for any normal meeting.

Alex Ossola (2:57)

Right. By Waller, you mean Christopher Waller, who's in the running to be the new Fed chair, along with Kevin Warsh, Kevin Hassett and Rick Reader. But our current Fed chair, Powell, he was asked today about the Justice Department investigation into him and the Lisa Cook case in front of the Supreme Court, both of which could affect the independence of the central bank. How did Powell talk about those things?

Spencer Jakab (3:18)

He was asked about it, but he wouldn't be drawn. So he was extremely professional, did not allow any of that to distract from the economic message.

Alex Ossola (3:26)

What has been the market reaction to today's Fed decision?

Spencer Jakab (3:29)

The market reaction has been fairly muted. The decision was very widely expected, and there was nothing really unexpected that came out of Powell's mouth. He said that they have a dual mandate, full employment and controlling inflation, and that the two are in balance and perhaps a bit more benign than they had been in the past.

Alex Ossola (3:46)

That was WSJ investing columnist Spencer Jakab. Thanks, Spencer.

Spencer Jakab (3:50)

Sure.

Alex Ossola (3:51)

Like Spencer said, markets didn't have a strong reaction to the Fed. But the dollar did climb today after Treasury Secretary Scott Besant said the US had a strong dollar policy and absolutely wasn't intervening in currency markets. The dollar had sold off yesterday, partly because President Trump said he wasn't concerned about currency declines. In round number milestones, the S&P 500 briefly crossed 7,000 points today for the first time, but later retreated. And stock markets finished the day pretty much unchanged from yesterday. The biggest move in the indexes was a 0.2% gain in the NASDAQ.