Fed's Barr talks Powell investigation, Fed independence, and policy, plus Ford CEO on EV's and trade

Welcome to Market Catalyst. I'm Julie Hyman. We are 30 minutes into the US trading day. Let's get to the three market catalysts we're watching this hour. First up, more earnings rolling in. We'll have the highlights from Goldman Sachs, Morgan Stanley, and BlackRock. Plus, Ford CEO Jim Farley weighs in on the state of the auto industry. We'll take you to the floor of the Detroit Auto Show and Intel focusing on the basics. How the company is taking a different approach to its business amid the AI boom. Let's get a check on what's going on in markets right now. The three major averages right now are trading higher. The Dow getting a boost of about 200 points at the moment. The S&P 500 up a half of 1% and the Nasdaq up almost three-quarters of 1%. Also want to point out we're seeing some new record highs at least on an intraday basis for the S&P equal weight index as well as the Russell 2000. So interesting to see that action within the S&P 500. It's really tech coming back today that is helping support the gains, supporting the gains in the NASDAQ as well. The XLK up 1 and a half percent. On the downside, we've got healthcare shares a little bit weaker today. But to point out what's going on within tech, of course, a lot of this has to do with what's going on with TSM. Taiwan Semiconductor coming out with numbers that beat estimates here and really helping the whole complex if you will, raising its capex forecast for the year to 52 to 56 billion and that confidence is lifting the semiconductor group and really the AI ecosystem more broadly. So you see here pretty much all green with a few exceptions going on within the semiconductors. And then just one more thing I wanted to get a check on and update you on and that's these two guys in the middle of your screen here. Morgan Stanley, Goldman Sachs both turning higher after their conference calls here. Initially we saw sort of a middling to negative reaction and those two on the back of a lot of positive gains for the stocks, but now they've turned higher as well. Really a lot of them beating. Both of the banks beat on most of the metrics that we track. Well, President Trump saying he has no plans to fire Fed Chair Jerome Powell in an interview with Reuters. This comes after the Justice Department launched a criminal investigation into Powell causing concerns about the future of Fed independence. Our Federal Reserve correspondent Jennifer Schonberger live now with Federal Reserve Governor Michael Barr. Jen,

Thank you, Julie. Governor Barr, thank you so much for sitting down with me. It was great to have you on Yahoo Finance. I want to start the conversation with the grand jury's subpoenas that were served to the central bank by the Department of Justice and the investigation into Chair Powell. How did you learn about it? And when you did, what was your reaction? How did you feel? How do you see this?

Are you worried that the independence of the Federal Reserve is under threat and will you personally take steps to protect that independence?

Let's talk about inflation. We got some new readings on inflation this week. CPI on a core basis has been sitting at 2.6% for the past 4 months. We also got some readings on wholesale inflation. How are you looking at inflation now as well as specifically the impact of tariffs on prices? And how much signal are you taking from the data now given that we are still seeing a bit of a lingering impact from the government shutdown?

And what's your perception now? Do you see a risk of inflation becoming persistent, especially when you looked at the beige book and we saw some of the anecdotal evidence there when you looked at the PPI report?

I do want to get to the path on policy, but you also mentioned the job market and the Fed cut rates three times the tail end of last year on concerns about the job market. We got the December employment report, the unemployment rate dropped to 4.4%. Do you think things are stabilizing now in the job market, albeit perhaps at a lower level?

When you look at both sides of your dual mandate, are you more worried about inflation now versus the job side or how are you looking at things now?

So we're less than two weeks away from your policy meeting. You said you're in a good place with policy right now. If the meeting were tomorrow, would you hold rates steady?

Looking farther out towards the end of the year. I mean, I recognize we're in January. A lot of things can change, but do you perceive any adjustments to the policy rate perhaps later this year? Any rate cuts?

How restrictive do you think you are right now?

Okay. Sort of switching gears, President Trump is set to announce a new Fed chair soon. We know that he wants someone who was in favor of lower rates. How do you see the dynamic of a new Fed chair playing out with the rest of the committee? Do you see any shifts to the Fed being able to act independently?

Governor Barr, thank you so much for your insight. I so appreciate it. Welcome to the conversation there.

Thank you so much. That's Federal Reserve Governor Michael Barr. Julie, I'll send it back to you in New York.

Jennifer, thank you so much. Appreciate it. Coming up, we're breaking down the latest earnings action in the banking sector. Stay tuned for more Market Catalysts.

Bank earnings are in focus with two of Wall Street's biggest players delivering fourth quarter results. For more reaction, let's bring in Stephen Bigger, director of financial services research at Argus, and Devin Ryan, director of financial technology research at Citizens. Guys, thanks so much for being here. It's been an interesting morning, hasn't it? Because Goldman and Morgan Stanley both reported, the stocks kind of languished a little bit and then have been perking up after the conference call. Devin, you and I were emailing a little bit trying as I was trying to get my hands around what was going on there. In your mind, what were sort of the key things that were said on the calls that maybe turned the sentiment here?

Yeah, good morning, Julie. So, yeah, I think that the point is the bar was really high for these companies heading in. So, even though they both beat numbers pretty nicely, that was kind of baked in expectations. I think most on the buy side assumed they would beat. So then therefore it all became around what they were going to say on the call and what they were going to give in terms of kind of new targets. Were they going to address the old targets and update? And Morgan Stanley, you know, they didn't increase the return on tangible common target which I think most people were hoping they would, but positively they addressed it on the call and effectively I think investors are walking away feeling like yeah they'll probably continue to beat that number and it's just more out of conservatism. So I think that's the Morgan Stanley nuance and so people feel quite a bit better exiting that call. And then Goldman Sachs really kind of came out swinging on their old targets particularly around asset and wealth and I think setting a much higher bar for themselves and reaffirming their mid-teens ROE, you know, through the cycle or kind of over the medium term but with the expectation that there's a lot they can do on capital, still kind of $30 billion plus of buyback authorization and that's going to be a tool. So, I think people also feel pretty good there with a very constructive capital markets tone on the call plus some self-help here as we go into 2026. It was really about the outlook because we all knew that the quarter itself was going to be really strong.

Yeah. And speaking of outlook, Steve, Goldman in particular, that equities trading revenue number was just kind of incredible there. The record for any bank ever at $4.31 billion. Do you expect the momentum not just for Goldman but, you know, for some of the other capital markets businesses across Wall Street to continue to see that performance?

Yeah, Julie, we do. I mean, this is a unique environment obviously for the investment banks right here. It's really a, you know, a perfect storm in a good way. You got a great backdrop. You've got good, you know, fiscal monetary policy. You've got, you know, rising boardroom confidence. You had global announced M&A deal value was up over 40% in 2025. So I think you know a lot of those deals still haven't closed. So there's some of that backlog still that will, you know, generate into revenues and moving into this year. So you know it's really across the board. I mean it's the, you know, trading volumes have been good based on volatility. It's across equities and fixed income currency commodities. The M&A story, you know, continues to stay high. The boardroom confidence is getting better. There's a lot of competitive pressure on the side of corporates to either grow revenues or cut costs which can be done through M&A. That more favorable regulatory environment that we've talked about most of this year adding to deal demand and you know particularly these mega deals, you know, especially in vogue with a lot of that driven by the need for scale whether it's across technology, industrials, financial sectors. So you know all combined that's a very good backdrop for this year and let's not forget falling interest rates and more favorable financing terms. Right? So, it's been a, the market has been willing to absorb new debt, new equity. And that is a prerequisite to keeping that M&A story going.

And the banks themselves have also been engaging in some M&A. And with Goldman in particular, obviously the big headline was selling that Apple Card portfolio to JP Morgan. Devin, in the wake of that, do you feel like the course correction at Goldman for, you know, out of that consumer business is complete? Do you expect any other additions maybe at Goldman this year, maybe on the asset management side, or do you think that this is the Goldman that David Solomon wants and that the street wants?

Well, I think this is the Goldman that the street wants. And that course correction I think is to your point that the Apple movement was like the primary remaining piece there. And so I think that's an important moment for the firm to really think about the future. And then to your question around, you know, incremental opportunities I still think they're going to be looking at M&A, you know, they've done some tuck-in particularly in the asset and wealth side and I think that's an area where they can still grow. You know, they're putting up some really big targets for the alternatives business where, you know, they are expecting 75 to 100 billion dollars of net inflows annually in that part of their business. So very focused on kind of leveraging expertise and scale. Their 2030 target for 750 billion in alts AUM, that's like as big or bigger than most of the publicly traded alternative asset managers today. So I think they're really showing that this is an area and it has been going on for the last several years but where they can differentiate Goldman's franchise and also an area where I think you'll see continued growth focus M&A to your point and the point around kind of capital relief and excess capital and there's a lot of ways you can both reinvest that back into the business to grow, you can return it to shareholders through dividends and buybacks and they increase their dividend today by 50 cents and they talked about, you know, being selective on buybacks that still being an important tool and you can do M&A and I think that's very much on the table and maybe increasingly so just with, you know, with some of the capital changes and regulatory relief that we're seeing here.

That said, Devin, I do want to follow up on that because you do have a market perform, a neutral equivalent rating on Goldman and on Morgan Stanley. Are they just too expensive right now?

Yeah, we've been bullish on both these companies for quite some time in the not too distant past year and we've just gotten into a phase where we do think that the valuations are reflecting a lot of our enthusiasm and so, you know, there's a couple things going on. The fundamentals could not be better and you heard that from the call today and things are actually getting better into 2026 and I think that's supporting investor enthusiasm and a lot of active managers rotated into these names early in 2025. I think a lot of the incremental buying over the last six months has been more passive. So you had $30 billion of net inflows into ETFs and financials, which is massive for financials over the last year. And so I think that's been a big piece of driving the valuations to where they are today. So we feel like they're getting a lot of credit, but I think when you take a step back, if you have a 3 to 5 year horizon here, I think you do well. In the very near term, we're taking a pause to try to digest some of the recent stock move. But you know, I think it's the valuation versus the fundamentals. Fundamentals really couldn't be better and I think are actually accelerating and in some ways today's update was even marginally better than I think people were hoping for.

And Steve, you're weighing it a little bit differently because you have buy equivalent ratings on both these guys. So, do you see any risks out there to that upside case that you have?

Well, I think as Devin said, yeah, the consensus about the profit growth this year is probably intact. You know, a lot of things could happen, obviously on the global side or regulatory or what have you to upset that story. But no, I think this is a, you know, a stair step higher for valuations for these banks. You know, even Morgan Stanley had say 15 times next year's earnings. You know, you've got this incredible backdrop I think of a strong momentum that's likely going to be here, you know, several years as long as the, you know, president administration is helpful with that backdrop whether it's the fiscal policy, the AI trade that as I mentioned, the need for corporates to get more efficient and grow revenues. So you know, there's a lot of capital markets formation that's possible here and I think generally when you have this move higher in the capital markets trade, generally you'll get a stair step higher in valuation. So I think it has a little bit longer to run here. I think, you know, at least through the administration currently and, you know, we'll take a pause potentially after that. But these banks are in, you know, are in great shape and typically the valuations themselves are, I don't think, are a hindrance at this point.

And Steve, while I have you here, before I let you go, I want to ask you about two other companies in your coverage that also have been affected by some things going on with the administration in a different way. I'm talking about Visa and Mastercard because of the rhetoric that we've heard from the president about the 10% credit card rate cap. And what's interesting here is pretty much everybody we've talked to has said it ain't going to happen, right? The banks are against it. They don't think it's a good idea. It's not getting traction in Congress. And yet we have still seen some of these stocks under pressure in the case of Visa Mastercard kind of like a delayed pressure. What do you think is going on there? And is there any threat here?

Well, I don't think the news on the 10% interest rate cap was all that surprising. Candidate Trump had talked about this on the campaign trail last in 2024. And there was a Senate bipartisan legislation that was proposed, Sanders and Hawley, last February as well, you know, talking about that. So you know I think it is just a long road. I mean even Speaker Johnson has talked about the, you know, the heavy lift that this is likely to be. I'm not clear on a one-year deal for this and what that, you know, will necessarily accomplish. I expect there's probably some sort of a compromise in store which means that, you know, banks have talked about being more innovative, more inventive about the credit card offerings. I think there could be more tiering with credit scoring and so forth. Not everybody needs to pay that, you know, 16 to 20% or higher on their credit cards. So I think you could bring that average rate down without doing much. I think the industry is going to be, you know, extremely vocal about the, you know, the downsides of this when you look at credit availability and so forth that it's a, you know, US credit card lending went over a trillion dollars in 2023, it's now about 1.2 trillion. I think, you know, there needs to be more education on how that's a really imperfect form of financing for consumers generally. But I think Mastercard and Visa as the processing networks are a little bit, you know, removed from this. They don't have to worry about the lending side to the extent it upsets the business model a bit but there's been such a long-running transfer to digital payments from cash and checks that they've got a, you know, very long runway for growth on the processing side and I think that's, you know, that's behind some of this but I agree the headline risk remains here and we're going to have to see how that plays out at the regulatory level.

We will indeed. Stephen, Devin, thank you so much. Appreciate it.

Thanks, Julie.

Coming up, we'll hear from Ford CEO Jim Farley about EVs, F1, and challenges the company's facing this year. That's next on Market Catalysts.

The auto industry facing a reset from a rethink of the EV timeline to uncertainty around tariffs and trade. Yahoo Finance's Pras Subramanian sat down with Ford CEO Jim Farley at the Detroit Auto Show to talk about all of that and the rising competition in China.