Fed Holds Rates — Inflation Back in Focus - Prof G Markets Recap

Podcast: Prof G Markets

Published: 2026-01-29

Duration: 40 minutes

Guests: Michael Gapen, Gil Luria

Summary

The Federal Reserve holds interest rates steady amid inflation concerns, while fluctuations in the dollar and gold prices highlight economic uncertainty. The episode also reviews Meta's and Microsoft's earnings and explores Adobe's investment potential.

What Happened

The episode opens with Ed Elson discussing the Federal Reserve's decision to hold interest rates steady after three consecutive cuts last year. This move reflects signs of labor market stabilization and an uptick in inflation. However, two Fed governors dissented, advocating for a quarter-point cut, suggesting differing views on monetary policy strategies.

Michael Gapen, Chief U.S. Economist at Morgan Stanley, talks about the implications of the Fed's decision on the U.S. dollar, which has fallen to its lowest level in four years. This decline has coincided with a noticeable rise in gold prices, indicating investor concern about the dollar's stability and inflation.

The conversation then moves to a detailed analysis of Microsoft's and Meta's recent earnings. Microsoft's revenue increased by 17% year-over-year, with Azure showing significant growth compared to its competitors. Notably, 45% of Microsoft's remaining performance obligations are linked to OpenAI, illustrating the strategic importance of AI partnerships.

Meta's earnings report reveals a 24% increase in fourth-quarter sales, with the company providing optimistic sales guidance for the current quarter. Meta's advertising business is expanding at a rate of 24-25%, outpacing Google's ad market growth, showcasing Meta's strong market position.

The episode later shifts to Adobe, where Ed Elson presents his investment thesis. Adobe's stock has faced a steep decline over the past couple of years, currently trading 33% below last year's value and 56% below its peak. However, the company maintains strong financial metrics, with a revenue per employee of over $750,000 and significant contributions from its AI tools.

Adobe's price to earnings and price to sales multiples are considerably lower than their historical averages, suggesting potential undervaluation. With a gross margin of 90%, Adobe continues to be a dominant force in the software industry, particularly with its AI-driven innovations generating more than $5 billion in annual recurring revenue.

Ed Elson concludes by emphasizing the importance of finding well-established companies, like Adobe, at fair prices. He highlights Adobe's position in the market and its ability to maintain competitive advantages through innovation and strategic investments in AI.

Throughout the episode, the broader themes of economic uncertainty, technological advancements, and investment strategies are explored, providing listeners with valuable insights into current market dynamics.

Key Insights