Chapter 1: Why did the Federal Reserve decide to hold interest rates steady?
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.
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.
And two Border Patrol agents who shot Alex Preddy and the ICE officer who shot Rene Good in Minneapolis have been put on leave. It's Wednesday, January 28th. I'm Alex Osola 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.
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.
For more on the Fed's decision and what went into it, I'm joined now by WSJ investing columnist Spencer Jacob.
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Chapter 2: What factors influence the Federal Reserve's decision-making process?
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?
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. You know, 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.
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?
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.
Right.
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Chapter 3: How are AI startups achieving billion-dollar valuations without products?
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 Reeder. 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?
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.
What has been the market reaction to today's Fed decision?
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.
That was WSJ investing columnist Spencer Jacob. Thanks, Spencer. Sure. 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 U.S. had a strong dollar policy and absolutely wasn't intervening in currency markets.
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Chapter 4: What challenges do Neolabs face in the AI startup landscape?
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.
In corporate news, Amazon said it was laying off 16,000 employees. That brings its total cuts to 30,000 workers since October. CEO Andy Jassy has portrayed the cuts as an attempt to reinvigorate the company's culture rather than to cut costs. Amazon went on a hiring spree during the pandemic, adding about 100,000 workers in a short period.
And Jassy's said that surge in hiring led to bloat at the company. He's promised to operate like a startup, and that means, quote, removing layers. And Starbucks said today that its same-store sales grew 4 percent and revenue increased 6 percent in the latest quarter.
CEO Brian Nichols says his turnaround strategy is working, but profit declined 62 percent, taking a hit from those investments in stores and workers and from coffee tariffs. And we have some headlines for big tech earnings that came out after the bell. Tesla's revenue fell 3% as it lost its lead as the world's top electric vehicle maker to China's BYD.
While Meta said it had record sales and expects a massive increase in projected spending this year, a sign that its AI investments are still going strong. And Microsoft reported better than expected earnings because of its new deal with OpenAI and continued growth in its cloud computing business.
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Chapter 5: What is the market reaction to the Federal Reserve's latest decision?
For more details, visit WSJ.com. And we'll be discussing those results on tomorrow morning's show. Coming up, what's drawing investors to AI startups with no product or revenue? And President Trump's ultimatum for Iran. That's after the break. There's a new kind of startup getting attention in Silicon Valley.
These companies don't have any products or any revenue, but they've got eager investors. And some of these companies are valued at a billion dollars or more. The industry is calling these startups Neolabs. And Kate Clark, who covers startups for the journal, says that they're riding the AI wave in a different kind of way. Kate, how do these companies differ from other kinds of AI startups?
You can think of a neolab as kind of a mini baby open AI. These are a new generation of startups that, like open AI, are getting their start as purely research labs, research that would usually happen inside academic environments.
So basically they are trying to build better AI models, better systems of building AI through complicated equations, whiteboarding, coding, and they're not worried about applications of that AI. In other words, they're not really worried yet about actually trying to make any money.
Chapter 6: How is Amazon's job cut decision impacting its corporate strategy?
Can you give us a couple of examples of the names of these companies and how they're thinking about approaching AI?
Yeah, there are a couple of more well-known examples. One of those is Safe Superintelligence, which was founded by one of the original founders of OpenAI, and it is focused on building AI more safely. It is valued at over $30 billion, making it one of the most valuable startups. There's also Thinking Machines Labs, which is also founded by an OpenAI alum.
And there's a startup I focused on in my story called Flapping Airplanes, which wants to build new AI models with less data. We raised over $100 million to do that.
These valuations seem quite high. And also, there's no plan for a product or any kind of revenue anytime soon. Why are investors interested in these Neolabs?
I think the idea for investors is if one of these companies really does figure out a more efficient way or just a better way of building AI systems, that they will have a trillion-dollar opportunity on their hands.
These are a lot of the same people who have put billions of dollars into open AI and Anthropic and who are absolutely convinced that those companies will be worth a trillion dollars or more. in the near future.
So they think that if they bet on a bunch of these little companies that also want to disrupt the AI space, that they will see massive payday at some point, even if that is a decade down the line.
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Chapter 7: What recent developments have occurred in immigration enforcement?
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. And what kinds of challenges do Neolabs face?
I think that the big one is retaining the star talent that they have recruited or even keeping on some of the co-founders of these companies. We've already seen several examples of big shot researchers who founded these Neolabs actually leaving pretty quickly to go back to OpenAI or to go to Meta because they were offered, in some cases, $100, $200, $300 million packages to leave.
And if they can't keep their talent, they don't have anything. That was WSJ reporter Kate Clark.
Thanks, Kate. Thanks. In the latest development after the fatal shootings in Minneapolis, two Border Patrol agents who fired shots at Alex Preddy last weekend have been put on administrative leave, a decision that the Customs and Border Protection Agency says was, quote, standard protocol.
And the Department of Homeland Security says the ICE officer who shot and killed Renee Good earlier this month has also been placed on administrative leave.
With the backlash to the aggressive immigration enforcement operation in Minneapolis, the Trump administration has changed its strategy, putting border czar Tom Homan in charge of the operation in the city, as Democrats and some Republicans call for Homeland Security Secretary Kristi Noem to step down. President Trump has issued new threats against Iran.
Posting on social media today, Trump said that he hopes that Iran will negotiate a deal that includes stopping its nuclear program or it will face a possible attack. He said, quote, time is running out. Iran says it won't compromise on its right to continue enriching uranium for civilian purposes or to maintain its missile arsenal.
The Pentagon's buildup in the Middle East includes an aircraft carrier with its accompanying warships. And, like the U.S., many countries in Europe are trying to stop or deport migrants. Not Spain, which yesterday said that undocumented immigrants can legalize their status in the coming months.
The government estimates that about 500,000 people will gain legal residency, though analysts say it could be more. The plan doesn't apply to every migrant. For example, people with criminal records aren't eligible. And that's what's news for this Wednesday afternoon. Today's show is produced by Pierre Bien-Aimé with supervising producer Tali Arbel. I'm Alex Osola for The Wall Street Journal.
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