Fed Holds Interest Rates Steady, Offers Few Future Clues

The Federal Reserve announced it would keep its benchmark interest rate unchanged in a range of 3.5% to 3.75%. In a statement following the meeting, Fed Chair Kevin Warsh maintained a restrained approach to communicating future policy, offering little explicit guidance on the central bank's next steps.

The decision to hold rates was not unanimous, as three of the twelve regional Fed presidents voted for a rate hike. Many investors anticipate an increase at the next meeting in September, pointing to rising oil prices as a factor that could re-accelerate inflation. The Fed's statement noted that inflation remains above its 2% target, which it attributed to supply disruptions.

Chair Warsh's communication strategy differs from his predecessors, as he avoids providing detailed forward guidance. This approach is intended to compel government bond traders to interpret economic data independently, and their market reactions can in turn inform the Fed's decisions. This lack of direct guidance has contributed to increased volatility in bond markets and less consensus among investors about the path of future rates.

Meta reported that its free cash flow¹ declined 91% in the second quarter compared to the previous year, a result of heavy spending on artificial intelligence infrastructure. The company’s capital expenditures² increased 83% to $31.08 billion for AI-related systems like servers and data centers. Despite the high costs, Meta said AI improvements helped boost its advertising revenue by 27%. The company's stock fell nearly 10% in after-hours trading.

In contrast, Microsoft reported fourth-quarter earnings that surpassed analyst expectations. Its Azure cloud computing platform exceeded $100 billion in revenue for the fiscal year, a 41% increase. Investors responded positively to the company's decision to keep its capital expenditures plan unchanged, unlike some competitors ramping up AI spending. Microsoft's stock rose nearly 9% in after-hours trading.

Delivery company DoorDash announced it has received certification from the Federal Aviation Administration (FAA) to operate a commercial drone delivery service. The new division, called DoorDash Air, is not expected to launch until the fall of this year.

The company plans to build and manage the entire delivery operation, including ground infrastructure and handoff systems, in addition to the drones themselves. While this move makes DoorDash a competitor to existing drone delivery firms, the company stated it will maintain its current partnerships with Alphabet's Wing and Flytrex.

The objective behind the drone initiative is to reduce costs and delivery times. According to the company, drones are particularly suited for trips of three to five miles, which can take significantly longer for human couriers to complete due to the time required to find available drivers.