Overview of Fed Enters a New Holding Pattern on Interest Rates
This PM edition of The Wall Street Journal's "What's News" (hosted by Jessica Mendoza/Alex Osola) covers the Federal Reserve's decision to hold interest rates steady, investor enthusiasm for early-stage AI research labs ("Neolabs"), major corporate and market headlines, and several geopolitical and domestic news items. The episode features analysis from WSJ investing columnist Spencer Jacob and startup reporter Kate Clark.
Fed decision — main takeaways
- The Fed held rates steady after three straight cuts and signaled no rush to cut further; language indicated openness to future moves but no urgency.
- Chair Jerome Powell emphasized a data-dependent approach: "we'll be looking to our goal variables and letting the data light the way for us."
- Markets had a muted reaction; the decision matched expectations and Powell offered little new guidance.
- What would prompt cuts: materially softer jobs reports or weak data in other areas (manufacturing surveys, industrial production, durable goods). Several jobs reports are due before the March Fed meeting.
- Governance note: there was near-consensus within the Federal Open Market Committee; two officials dissented in favor of an immediate 0.25% cut. Powell declined to comment on unrelated legal or investigative matters raised about him.
Market and immediate financial reactions
- The dollar rose after a comment from the Treasury Department emphasizing a "strong dollar" policy and no intervention in currency markets.
- U.S. equities were largely unchanged; the S&P 500 briefly crossed 7,000 intraday before retreating. Nasdaq gained about 0.2%.
- Investors appear largely unshaken by the Fed’s neutral stance; markets are waiting for incoming data to signal direction.
Corporate and earnings highlights
- Amazon: announced 16,000 layoffs, bringing total cuts to about 30,000 since October. CEO Andy Jassy frames the reductions as cultural/efficiency moves after pandemic-era over-hiring.
- Starbucks: same-store sales +4%, revenue +6% for the quarter; profit fell ~62% due to investments in stores/workers and coffee tariffs.
- After-hours tech notes:
- Tesla: revenue down ~3% and lost its top EV-selling position to BYD (China).
- Meta: reported record sales and plans for materially increased spending—continuing heavy AI investment.
- Microsoft: stronger results driven by its OpenAI relationship and ongoing cloud growth.
- Reporter context: more detailed earnings coverage promised on WSJ and the morning show.
"Neolabs" — a new wave of AI research startups
- Definition: Neolabs are research-first AI startups focused on building better foundational models and research tooling rather than near-term products or revenue.
- Examples cited: Safe Superintelligence (founded by an OpenAI co-founder), Thinking Machines Labs, and a firm called Flapping Airplanes (aiming to build models that use less data). Some valuations exceed $1 billion; Safe Superintelligence was noted as having very high private valuations.
- Why investors fund them: belief that breakthroughs in model architecture, efficiency, or capabilities could unlock trillion-dollar opportunities—investors are effectively hedging on future dominance.
- Key risks:
- Talent retention: top researchers have already left some Neolabs for larger firms lured by massive compensation packages.
- Long timelines and lack of immediate product or revenue increase speculative/bubble concerns.
- Quote: Kate Clark likens Neolabs to "mini baby OpenAI" — research-first, product-later approaches.
Domestic enforcement and legal developments
- Minneapolis shootings: Two Border Patrol agents who fired at Alex Preddy were placed on administrative leave (described as standard protocol). An ICE officer who shot Renee Good was also placed on leave.
- The federal immigration operation in Minneapolis has faced backlash; leadership adjustments include bringing in border czar Tom Homan. Calls for the resignation of Department of Homeland Security leadership were reported.
International & policy news
- President Trump warned Iran via social media to negotiate a deal limiting its nuclear program or face a possible attack; Iran refused to compromise on enrichment and missile capabilities. The U.S. has increased military assets in the Middle East (including an aircraft carrier group).
- Spain announced a legalization pathway for some undocumented migrants — an estimated 500,000 people could gain legal residency under the plan; exclusions apply (e.g., criminal records).
Notable quotes
- Jerome Powell: "we'll be looking to our goal variables and letting the data light the way for us."
- Kate Clark on Neolabs: "a mini baby OpenAI" — research-first startups prioritizing models over products.
- Spencer Jacob on Fed cohesion: the decision shows the Fed "is functioning fairly well because there is consensus."
What to watch next
- U.S. economic data before the March Fed meeting, especially upcoming jobs reports and industrial/manufacturing indicators.
- Talent moves and funding rounds in the Neolab space that could signal sustainability or fragility of the funding surge.
- Corporate earnings follow-ups (detailed WSJ coverage) for stronger signals on tech spending, AI investment, and consumer demand.
- Developments in U.S.–Iran tensions and any further changes to homeland enforcement leadership or policy after the Minneapolis incidents.