Fed Raises 25 bps, Does Not Take Hawkish Bait; META Up Big on Q4

The Fed, as expected, rose the Fed funds rate 25 basis points (bps) to a range of 4.50-4.75% — the highest level we’ve seen since September 2007, before the mortgage derivatives crisis led to a global financial meltdown we often refer to as the Great Recession. For a bit more perspective, 4.75% interest rates haven’t been this high since more than a year before Barack Obama was elected president.

What the Fed sees is inflation steadily coming down as a result of its rather draconian interest rate policy — it raised 300 bps between early May and early November last year, in four-straight 75 bps moves — but history still advises caution. For those of us old enough to remember, 1970s inflation was thought to have been “dealt with,” only to come back stronger in the early 80s once the Fed took its foot off inflation’s neck.

Fed Chair Jay Powell appears to take this lesson to heart. That said, he was given plenty of opportunities in today’s news conference after the Fed announcement to slam market participants for growing bullish on the idea that the Fed may soon be done raising rates — but he didn’t. In fact, Powell stayed blithely agnostic about most potential inflation outcomes, expressing neither optimistic nor pessimistic viewpoints, and referred to the Fed re-establishing its “dot plot” at next month’s meeting.

Powell did say that disinflation was still in its early stages, and if inflation metrics continue to ebb at their current pace, it will not be appropriate to cut rates at all in 2023. He said the Fed has not yet made a decision on the terminal rate — will it be 5%? 5.25%? Higher? Lower? In any case, the raises are coming to an end by the current assessment, and even if they’re held higher than the market is pricing in, at least that’s enough information to get our arms around.

Meta META shares have zoomed ahead +18% in late trading today, following the company’s Q4 earnings report which was mixed on headline, but shows plenty of positive developments in terms of restructuring. Not bad for a company that was already +2.8% ahead of the print, +22% year to date and +68% from its early November lows last year.

On the earnings line, it doesn’t look too impressive: $1.76 per share was well below the $2.12 estimate and less than half the year-ago’s $3.67 per share reported. Revenues surged nicely higher, though — $32.17 billion versus $31.32 billion in the Zacks consensus. Q4 Daily Active Users (DAU) of 2 billion was in-line with expectations, while Monthly Active Users (MAU) at 2.96 billion was a hair below.

However, in Meta’s restructuring — especially in terms of its walking-back going all in on its Metaverse A.I. project — the company looks toward an improved Data Center design that accounts for A.I. and non-A.I. workloads separately. This is expected to lead to $5 billion in savings on operating costs through 2023. Meta also announced a $40 billion share repurchase authorization going forward.

Especially compared to another dismal earnings report from Snap SNAP yesterday, Meta seems to have snapped out of its funk and is setting its sights on greener pastures. Investors are clearly sensing an opportunity here; even though +68% gains have been made over the past four months, the stock is still down -50% from this time a year ago.

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