Wall Street Lunch: Fed keeps rates on hold

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The FOMC votes unanimously for no change with inflation sticky. (0:15) Powell says he’s had ‘no contact’ with Trump. (1:35) Nvidia facing new China sale restrictions? (2:27)

The following is an abridged transcript:

The Federal Reserve kept rates steady, as expected, while Fed chief Jay Powell came in on the dovish side, also as expected.

The FOMC voted unanimously to keep the fed funds rate at 4.25%-4.50% – that was never really in doubt. There was a little jolt from the statement, which dropped the language that inflation “has made progress to the Committee’s 2% objective.” Rates rose and stocks extended losses before Powell stepped up to the mic.

But Powell quickly eased concerns, saying the change in language on inflation was a result of cleaning up the sentence and not meant to be a signal. Treasury yields then moved back from highs while stocks trimmed losses.

The markets are still pricing in a first quarter-point cut for 2025 coming at the June meeting. But the odds rose to one-in-three from one-in-four that the Fed would stay steady at that meeting as well. Two cuts remain priced in for the full year.

Wells Fargo economists said “with policy remaining somewhat restrictive, albeit not as restrictive as a few months ago, we are penciling in another 50 bps of easing by the end of 2025 (25 bps in September and another 25 bps in December). Thereafter, we look for the FOMC to maintain its target range at 3.75%–4.00% through the end of 2026.”

DoubleLine Capital’s Jeffrey Gundlach says a “maximum” of two cuts is possible this year and one could be the base case.

In the absence of monetary policy excitement, the press corps naturally tried to lure Powell into the political arena. But the chairman didn’t take the bait.

He refused to comment on President Donald Trump’s demand that rates come down immediately and said he’d had “no contact” with him. He did reaffirm that the Fed would act independently, though, stressing the “public should be confident we are doing our work as we always have.”

On tariffs he said, “we really don’t know” and added he wanted to avoid commenting even indirectly on tariff policy because “it’s just not our job.” He added there is nothing in a data saying it’s suddenly getting harder for companies relying on immigrant labor to find people, but the Fed does hear that anecdotally.

As for market reaction, rates trimmed most of their post-statement gains. The 10-year Treasury yield (US10Y) remains near 4.55%.

Stocks ended off their lows for the day, buoyed by the Powell presser and a making a late run at the unchanged level. But they ultimately finished in the red.

Tech – and Nvidia (NVDA) in particular – saw more weakness on a report the White House is considering further restrictions on Nvidia chip sales to China.

Bloomberg reported the updated restrictions would expand to cover Nvidia’s H20 GPUs. But any new potential restrictions are likely “a long way off.”

The Nasdaq (COMP.IND) closed down 0.5%, with Nvidia finishing off 4.3% off its lows. The S&P (SP500) lost 0.5% and the Dow (DJI) fared the best again, closing down 0.3%.

Powell did address Wall Street, saying asset prices are elevated “by many metrics” and a “good part of that” is around tech and AI. But the AI selloff is not a substantial, persistent change.

Looking further into the ever-changing AI landscape, Citron Research continued to hype up Alibaba’s (BABA) new Qwen AI models, launched earlier this week.

It said: “Citron has been ahead of the curve on Alibaba and Qwen for the past six months. But what’s even more critical (and still overlooked) is Qwen’s enterprise applications. China lags the U.S. by decades in business software, and the catch-up will be rapid. This is bullish for China overall and strengthens the long China trade.”

Alibaba Cloud’s own Qwen team recently released a new family of artificial intelligence models, Qwen2.5-VL, capable of performing a number of text and image analysis tasks. The new Qwen2.5-VL range can parse files, analyze videos, count objects in images and control computers – capabilities similar to OpenAI’s new Operator model.

Alibaba published benchmark scores that showed the new Qwen 2.5 Max version of the large language model scored better than Meta Platforms’ (META) Llama and DeepSeek’s V3 model.

And Microsoft (MSFT) and OpenAI are investigating if a group linked to DeepSeek obtained data output from the ChatGPT maker’s technology in an unauthorized manner.

Bloomberg reports that security researchers at Microsoft in the fall noted individuals – believed to be linked to DeepSeek – exfiltrating a lot of data using OpenAI’s application programming interface (API). Under OpenAI’s terms, developers must pay to use its API to integrate its AI models into their applications.

Among active stocks, Starbucks (SBUX) got a vote of confidence from the sell side today after its earnings report late Tuesday.

Bank of America thinks Starbucks will continue to benefit from its new initiatives and will see minimal impact from higher coffee prices. TD Cowen said it prioritized positive commentary on January trends and management expectations for fiscal Q2 comparable sales over a lowered 2025 EPS estimate.

And Morgan Stanley said “we’ve seen changes steadily drip out and gotten a clear sense from CEO Brian Niccol of the future vision (from commentary, and our own experiences), (and) we do think the difference can be material, with discipline in implementing the strategy, and sales should follow.”

Even though traders initially liked Qorvo’s (QRVO) third-quarter results and guidance, both of which topped estimates, the stock came under pressure after the earnings call.

CEO Bob Bruggeworth said Qorvo’s revenue is more heavily weighted towards the Pro and Pro Max models of Apple’s (AAPL) iPhone, compared to other models. And with volumes and mix across models changing year to year, Bruggeworth said Qorvo is “currently forecasting” revenue from Apple to be “flat to up modestly.”

And Corning (GLW) saw buying after it boosted guidance. Corning expects Core sales to grow about 10% year over year to around $3.6 billion in Q1. It anticipates core EPS in the range of $0.48 to $0.52, compared to consensus $0.48.

CFO Ed Schlesinger said: “We outperformed in the fourth quarter, driven by strong adoption of our new products for Gen AI, which drove sales growth of 93% year over year in the Enterprise portion of Optical Communications. We also successfully implemented double-digit price increases in Display Technologies.”

And in the Wall Street Research Corner, famed investor Howard Marks says it will take at least a decade for the easy-money era to return.

The co-founder of Oaktree Capital said during the Miami Hedge Fund Week at the Global Alts conference: “I don’t believe that the next 10 years will be characterized by declining interest rates or ultra-low interest rates.”

Marks also sounded caution on above-average stock valuations, including the Magnificent Seven, as well the fact that large-cap stocks have seen “automated buying…without regard for their intrinsic value.”

“Everybody should look at their holdings and try to make sure that the things they own, they own based on strong and improving fundamentals,” he said. “If you can get low single-digit returns from the S&P 500 with great uncertainty and 7.3% from high-yield bonds contractually, isn’t it better?”

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