Episode summary
Fed Holds Rates — Inflation Back in Focus | Prof G Markets
Prof G Markets
· · 38 min · Hosts: Ed Elson, Scott Galloway · Guests: Michael Gapen, Gil Luria
Summary
The episode centers on a Fed that held rates steady after three cuts last year, with the key debate shifting from labor-market weakness to whether inflation can keep easing. Michael Gapen of Morgan Stanley argues the decision was a dovish hold, not a hawkish one, because the Fed now sees the economy as improved, the labor market as more stable, and inflation as less likely to surprise higher. He says future cuts would be driven more by inflation coming down than by renewed labor-market stress, while rate hikes are not the baseline case.
Gapen also says the Fed is comfortable enough with the inflation path to stay modestly restrictive, even though tariffs may still be filtering through goods prices and the data may be incomplete after the shutdown. On the dollar, he says the recent decline reflects a broader reassessment of U.S. policy and country risk rather than a direct Fed target, with gold acting as one outlet for those concerns.
Later, Gil Luria of DA Davidson argues Microsoft remains fundamentally strong despite a muted stock reaction, while Meta deserves its premium because ad growth is still running in the mid-20s and AI spending is supported by its core business. Ed then makes a bullish case for Adobe, saying the stock is cheap relative to history despite solid cash generation, strong margins, and what he sees as an underappreciated AI and short-form video tailwind.
Key takeaways
- Michael Gapen says the Fed’s stance is a dovish hold, with cuts more likely to come from falling inflation than from labor-market weakness.
- Gapen argues inflation is still above target but likely to ease later this year, even as tariff pass-through and missing data cloud the picture.
- Gapen says the dollar’s weakness reflects broader U.S. policy and country-risk concerns, with gold acting as a pressure valve.
- Gil Luria says Microsoft remains in very good shape even after a modest Azure miss, and OpenAI exposure is still manageable because Microsoft is first in line.
- Luria says Meta can justify heavy capex because its ads business is still growing in the mid-20s and gaining share from Google.
- Ed argues Adobe is unusually cheap versus its own history, with strong margins, $24 billion of revenue, and AI already contributing to growth.
Notable quotes
“I think what markets and I was looking for really was is the Fed have they paused or are they on pause”
“So, I think what that means is cuts shift to inflationbased cuts”
“I would say each with each passing month, they have greater confidence that inflation will be coming down later this year”
“the dollar gets a lot of that expression as we would say in in markets”
“Microsoft is still doing the best of all the large cloud providers”
How the episode opens
Today's number, four. That's how many years some octopus mothers will go without food while they guard their eggs from predators. Scientists have described these maternal instincts as an inspiration.
However, Brooklyn Beckham has called it stifling. Welcome to Profy Markets. I'm Edson.
It is January 29th. Let's check in on yesterday's market vitals. The S&P 500 hit 7,000 for the first time ever to start the day.
Still, all three major indices ended the day flat after the Fed's interest rate decision. More on that in a minute. Meanwhile, the yield on tenure treasuries increased.
Oil climbed after President Trump warned Iran that a quote massive armada is ready for violence. And Tesla stock rose after hours as the company posted a better thanex expected fourth quarter report. However, revenue for the full year dropped for the first time in company history.
Okay, what else is happening? The Federal Reserve is holding rates steady after three consecutive cuts last year. The central bank explained that unemployment is showing quote some signs of stabilization while inflation remains quote somewhat elevated.
In his remarks, Chair Powell said that the outlook for economic activity has quote clearly improved since the last meeting and that should matter for labor demand and employment over time. Meanwhile, two governors, Steven Myron and Christopher Waller, dissented. They voted in favor of a quarter point cut.
Stocks wavered after the decision to hold, pulling back from a record high earlier in the session. All right, here to discuss the Fed's decision, we are speaking with Michael Gapen, managing director and chief US economist at Morgan Stanley. Michael, thank you very much for joining us on ProfG Markets.
Thanks for having me on. — So, this Fed decision, uh, the Fed held steady pretty much as expected.
From the episode’s captions: roughly the first two minutes, lightly cleaned. Keep watching on YouTube →
Topics
- fed rate decision
- inflation outlook
- us dollar decline
- tech earnings
- stock pick
Companies and tickers mentioned
- MS
- META
- MSFT
- ADBE
- Morgan Stanley
- Meta
- Microsoft
- Adobe
Watch the episode
Watch “Fed Holds Rates — Inflation Back in Focus | Prof G Markets” on YouTube
Summary, takeaways and quote selection by Octagon. Quotes are short excerpts; the full conversation is in the episode.
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