Rates held firm while tech giants soared
The U.S. Federal Reserve (the Fed) stayed put at 4.25%-4.50%, exactly as traders expected, yet its statement sounded softer. Officials acknowledged that economic growth cooled in the first half, and for the first time since 1993 two governors (Waller and Bowman) broke ranks, voting for an immediate cut. That split, paired with growth “moderating”, nudged markets to price a higher chance of easing at the September meeting. Rate-cut odds for 2025 remain stuck around two trims. Fed chair Powell still wants proof that tariff-driven price pressures will fade, yet with inflation trending lower and growth downshifting, those on the committee in favour of rate cuts are getting louder. For now, Powell’s job security looks firmer: both the rates market and prediction markets now see a lower probability he’s shown the door before year-end.
Here at home, Bank of Canda (BoC) Governor Macklem also kept the interest rate unchanged, and the market’s reaction was telling. Just a couple months ago, traders anticipated two more cuts; now they give barely two-thirds odds on a single move before December. Headline consumer price index (CPI) sits inside the BoC’s comfort zone at 1.9%, but core inflation (which excludes food and energy) refuses to budge, something that the statement flagged explicitly. That stickiness, plus a sturdier labour market, has pushed the “easy” phase of the cutting cycle into the rear-view mirror. The upshot is that the BoC may only trim once this year, while the Fed still has roughly two cuts pencilled in for 2025.
Last week’s blowout from Alphabet set the tone for this week, as Microsoft and Meta carried the torch. Meta widened its full-year revenue and spending outlook, signalling that it’s ready to plow even more than the previously projected $64-$72 billion into data centres and AI infrastructure. Investors who were worried that the ad engine couldn’t fund that spree can breathe a little easier. For now, the cash machine is humming loudly enough to pay the bills.
Microsoft, meanwhile, delivered a clean sweep: revenue of $76.4 billion and earnings-per-share (EPS) of $3.65 both beat lofty expectations. Cloud sales cracked $46 billion for the quarter, with Azure revenue up nearly 40%; full-year cloud totals topped $75 billion. Capital expenditures (CapEx) hit $24 billion, signalling no let-up in the AI land grab. The stock ripped, extending gains from last quarter and reinforcing its status as the market’s favourite defensive-growth play. With positioning already stretched, the bar was high, and the giants cleared it.
Looking ahead, both the Fed’s and the BoC’s refusal to cut rates points to a slower, shallower easing cycle than markets hoped for back in the spring. Still, earnings from the tech titans are cushioning any interest-rate policy anxiety. Next week brings another cluster of S&P 500 company results. If inflation stays tame and corporate profits hold the line, the summer is looking to be better than the market had expected.
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