How aggressive will the Fed be in its fight against inflation? Investors hope to get some answers today from Chair Jay Powell, who will take the podium at 2:30 p.m. ET. On watch is the pace of interest rate increases, which are expected to begin in March and accelerate this year, to help slow the pace of price pressures that have plagued the U.S. economy for most of 2021. The Consumer Price Index even breached the 7% level in December, running at its highest annual pace in nearly 40 years.

Balancing act: "Weaker economic growth projections have contributed to investors breathing a sigh of relief that the Fed won't have to be overly aggressive," said Sam Stovall, chief investment strategist at CFRA, but that's specifically what some are afraid of: a policy mistake. A transitory inflation forecast - since retired by the central bank - remains fresh in investors' minds. If the Fed goes too soft, it runs the risk of allowing price pressures to get entrenched in the economy, making it a lot harder to fight inflation down the line.

The rate hiking cycle isn't the only thing on watch. The Fed is looking to combine the tightening with a reversal of its bond-buying program and a runoff of its nearly $9T balance sheet, betting that a smaller central bank presence in financial markets could help relieve inflationary forces. In contrast, the Fed was focused on the economic risks posed by the coronavirus pandemic for much of the last year, continuing to support the economy with pandemic-era stimulus.

Outlook: Keep an eye on 10-year Treasury yields, which briefly broke above the 1.9% threshold last week, triggering the fear seen in equities and much of the market. There are also worries that international developments could exacerbate inflationary forces, like supply problems related to China's Zero COVID policies or an energy crisis from a military conflict between Russia and Ukraine. In turn, many foreign economies are watching the Fed's path forward on monetary policy, which can shake up exchange rates and destabilize economic growth around the world.

Microsoft delivers

It's not an easy environment to report earnings, given the recent market volatility, but Microsoft (MSFT) was able to overcome the recent selling pressure on the tech industry. Shares rose 1.2% AH to $292 on Tuesday (following an earlier decline) as the company delivered an upbeat forecast for fiscal third quarter. Don't forget beats on both earnings and revenue, with quarterly sales that topped $50B for the first time on strength in cloud, gaming and Windows software.

Guidance: With Azure cloud growth set to pick over the next three months, Microsoft expects revenue for the period to be between $48.5B and $49.3B, topping average analyst estimates of $48.1B. CEO Satya Nadella also said the tech giant was experiencing a "PC renaissance with increases in time spent on PCs and PCs per household." The earnings arrived a week after Microsoft announced a whopping $69B deal to acquire Activision Blizzard (ATVI), which it hopes "shape what comes next for gaming as platforms like the metaverse develop."

"We would be buyers on this modest selloff as we believe the underlying metrics and implied growth trajectory into the rest of 2022 are strong for MSFT," Wedbush Securities analyst Dan Ives wrote in a research note. "In this jittery market we will see every tech print initially viewed as glass half empty, but ultimately this remains a core cloud name to own and we believe is in oversold territory."

Up next: More trillion-dollar tech companies are set to report quarterly results this week, including Tesla (TSLA) this afternoon and Apple (AAPL) tomorrow. Investors will be paying close attention to the reports, with the earnings and sentiment likely to define the road ahead for tech darlings amid inflationary pressures and rising interest rates. The Nasdaq tumbled 7.6% in the last week alone and is off 12% so far in 2022 (futures are up this morning in the latest bout of volatility).

T is for Topics

Google (GOOG, GOOGL) is overhauling plans for a key technology it had been developing to replace cookies, which are small browser files that track user behavior as they move around online. Advertisers and publishers rely on cookies to make money, as they give them the ability to display targeted advertisements based on relevant topics that interest a user. The term "cookie" was coined by web programmer Lou Montulli in 1994, based on the term "magic cookie" (like a fortune cookie), or a packet of information with an embedded message.

Backdrop: In 2019, Google announced that it would replace cookies in its Chrome browser with FLoC, Federated Learning of Cohorts. The tracking protocol was claimed to be far more anonymized, but still able to yield conversion rates of 95% for every ad dollar spent. The plans were found to be less effective and didn't pan out, and in July 2021, the company announced that Chrome would continue supporting third-party cookies until at least mid-2023.

Now, Google is taking a second stab at altering the cookie landscape, replacing FloC with "Topics." The API works by pinpointing 15 baskets out of about 350 "topics" like "Fitness" or "Travel & Transportation," and is based on three weeks of browsing history (older topics are deleted). Advertisers will be able to see up to three topics per user - one topic from each of the past three weeks - and could then decide whether to show that individual an ad based on their web history.

Go deeper: While some have embraced a move away from "privacy-invasive tracking cookies," advertisers, website owners and publishers have cautioned that it may further limit competition in the advertising industry. They fear that the loss of cookies will make them more reliant on buying ads from tech giants because of their massive user databases, with Apple (NASDAQ:AAPL) also making privacy a selling point to consumers and unveiling its own changes last year. Complaints have also led antitrust authorities in the U.S., U.K., EU and elsewhere to closely follow the latest happenings in the industry.

Coming after Tesla

Looking to catch up in the electric vehicle race, General Motors (GM) is plowing $6.6B in its home state of Michigan through 2024 to increase EV pickup truck production and build a new EV battery cell plant. The investment is part of a strategy to increase the automaker's U.S. production capacity of 1M electric vehicles by 2025, and a bigger $35B pledge the company previously made to spend on the industry. Even luxury carmakers are following suit, with Lamborghini and Bentley pledging to go fully electric this week.

Quote: "We will have the products, the battery cell capacity and the vehicle-assembly capacity to be the EV leader by mid-decade," GM CEO Mary Barra said in a statement. It was only a few months ago that Barra forecast that General Motors would "absolutely" catch Tesla (TSLA) in U.S. sales of electric vehicles by 2025.

It won't be easy to do in just three years. While Tesla doesn't provide a specific breakdown of its American sales, the EV maker delivered 936,172 electric vehicles globally in 2021. Putting that in perspective, GM sold less than 25,000 EVs last year, even ranking behind Ford (F), which sold 27,140 of its Mustang Mach-E. Among the EVs that General Motors plans to put on the market are electric versions of the Hummer, Equinox, and Silverado and Sierra pickup trucks.

Outlook: New vehicle prices have jumped 12% over the past year (used cars and trucks have soared by 37%), but that hasn't put a dent in vehicle ownership. Boosted by stimulus and higher wages, Americans are splurging on the sector, according to a recent Morning Consult survey, with ownership rates rising again last month. "Older adults tend to be more sensitive to pandemic developments, and a growing preference for private transportation over public transit could be a result of rising case counts," added the authors of the study, economists John Leer and Kayla Bruun.

Today's Markets

In Asia, Japan -0.4%. Hong Kong +0.2%. China +0.7%. India closed.
In Europe, at midday, London +1.8%. Paris +2.3%. Frankfurt +2.3%.
Futures at 6:20, Dow +1.2%. S&P +1.5%. Nasdaq +2.2%. Crude +0.6% to $86.14. Gold -0.5% at $1843.30. Bitcoin +4.6% to $37968.
Ten-year Treasury Yield unchanged at 1.79%

Today's Economic Calendar

7:00 MBA Mortgage Applications
8:30 International Trade in Goods (Advance)
8:30 Retail Inventories (Advance)
8:30 Wholesale Inventories (Advance)
10:00 New Home Sales
10:00 State Street Investor Confidence Index
10:30 EIA Petroleum Inventories
11:00 Survey of Business Uncertainty
11:30 Results of $26B, 2-Year FRN Auction
2:00 PM FOMC Announcement
2:30 PM Chairman Press Conference

Companies reporting earnings today »

What else is happening...

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3M (NYSE:MMM) beats expectations as Omicron lifts N95 mask sales.

More earnings: Weak guidance weighs on General Electric (NYSE:GE).

GM (NYSE:GM) invests $7B in plants with goal to be an EV leader.

Lumber plunges for seventh day on demand fears, supply chain chaos.

Russian finance ministry official objects to central bank crypto ban.