The U.SFederal Reserve concluded its two-day monetary policy meeting on January 29, maintaining the target range for the federal funds rate at 4.25% to 4.5%. This marked the first pause in the rate-cutting cycle initiated in September of the previous year, aligning with widespread market expectations.

During a previous monetary policy meeting in December, Fed officials anticipated a significant slowdown in rates of interest cuts by 2025, predicting a decrease of about 75 basis points throughout the yearHowever, in light of recently released economic and employment data, market expectations suggest that the Fed may only cut rates once in 2025, with some even speculating that there may be no cuts at all.

There remains considerable division among Wall Street analysts regarding the direction of the Fed's monetary policy for the remainder of the yearAccording to CME Group’s FedWatch Tool, traders anticipate two interest rate cuts, expected to occur during meetings in June and October, potentially lowering the federal funds rate to a range of 3.75% to 4% by year’s end.

Major investment banks in New York exhibit varying predictions as wellBoth Goldman Sachs and UBS expect two cuts, while Deutsche Bank predicts that there will be no cuts at all this year.

Federal Reserve Chairman Jerome Powell’s recent comments indicated his view that the American economy remains generally strong, with GDP projected to exceed 2% in 2024. While the labor market has cooled somewhat, it remains robustPowell noted that reserve funds are still plentiful and emphasized the Fed’s close monitoring of signals regarding reservesHe remarked that overall financial conditions seem slightly accommodative, with banks holding sufficient capital and household financial situations being stableMany indicators show that asset prices are elevated, which raises concerns regarding financial stability linked to asset prices, leverage levels, and funding risks.

When asked about potential rate cuts in March, Powell reiterated the importance of not rushing into decisions

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He pointed out that the Fed does not need to wait for the inflation rate to fall back to the 2% target before considering further cutsAccording to Powell, the upswing in long-term interest rates is not tied to Fed policy but is more reflective of the term premium.

Regarding administrative orders, Powell indicated that the Fed is reviewing the relevant specifics to align its policies with applicable lawsAdditionally, he stated that there had been thorough consideration regarding exiting the "Network for Greening the Financial System" (NGFS), an action not spurred by political motives but by a mismatch between NGFS activities and the Fed's core responsibilities.

On tariffs, Powell acknowledged the evolving trade landscape, stating that the potential implications of tariff policies are broad and that he refrained from speculating on how tariffs would ultimately affect consumers.

As for artificial intelligence, Powell characterized it as a significant factor in stock market dynamics but underscored that the Fed's main focus remains the macroeconomyHe described the sell-off triggered by developments in the AI sector as neither substantial nor indicative of a lasting change.

The language changes within the Fed's recent resolution have attracted attentionAt the onset of the resolution, the Fed indicated that recent metrics suggest economic activity continues to expand at a steady paceThe unemployment rate has remained low, and the labor market appears solid, despite inflation remaining relatively high.

In contrast, during the previous resolution at the end of last year, the Fed reported that "the unemployment rate has increased but remains low," and inflation was "moving toward the committee’s 2% target but still slightly high." The Fed omitted the earlier phrasing related to "progress in lowering inflation."

When Powell was questioned about this modification, he noted that the Fed undertook some "language cleaning" in the statement, omitting the reference to "progress toward achieving the inflation target," clarifying that this was not intended to convey a specific message.

Another distinction was that while the December resolution recorded one dissenting vote, the latest resolution passed with unanimous support.

With the arrival of the new year, there has also been a shift in the voting committee of the Federal Open Market Committee (FOMC). Members who voted against in December, like Cleveland Fed President Loretta Mester, alongside others, are no longer voting members

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They have been replaced by new voting participants, including Susan Collins from the Boston Fed, Austan Goolsbee from the Chicago Fed, Jeffrey Schmid from the Kansas City Fed, and Alberto Musalem from the StLouis Fed.

In the stock market, U.S. major indexes collectively ended in the redFollowing Powell's statements, there was an initial uptick in market sentiment; however, three major index benchmarks ultimately closed lower, with the Nasdaq down 0.51%, the S&P 500 declining 0.47%, and the Dow Jones Industrial Average decreasing by 0.31%.

Within the tech sector, shares experienced mixed performancesNvidia fell by 4%, Tesla dropped over 2%, Microsoft declined by more than 1%, with Intel and Amazon also slightly lower; conversely, Meta, Netflix, Google, and Apple saw modest increases.

Several technology companies recently reported earnings that underperformed market expectationsMicrosoft reported cloud revenues of $40.9 billion for Q2 of FY2025, just shy of the $41.1 billion anticipated by the market, leading to a post-earnings drop exceeding 4% in after-hours trading.

Tesla disclosed revenue of $25.71 billion for Q4 2024, which fell short of the $27.15 billion estimate, although this was an increase from the previous year's $25.167 billionIts net profit for Q4 stood at $2.317 billion, beating the anticipated $2.241 billion, resulting in significant volatility in its post-earnings stock price.

Additionally, shares of Meta fell over 4% after hours, despite the company achieving Q4 2024 revenues of $48.385 billion, surpassing the $46.99 billion expectation, compared to $40.111 billion during the same period last year.

IBM's Q4 revenue reached $17.55 billion, slightly exceeding the analyst expectation of $17.54 billionThe company expects a 5% revenue growth for the year at constant currencies, against an analyst forecast of 4.81% growth.

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