# Fed Holds Rates as Fresh Inflation Data and AI Earnings Test Markets

> September inflation remained above the Fed’s target, while Microsoft and Alphabet delivered sharply different investor reactions to their AI businesses.

By Lidia Yadlos · October 29, 2026

Canonical: https://blockster.com/fed-holds-rates-inflation-ai-earnings-markets-october-29-2026

The Federal Reserve held interest rates steady on Wednesday. Thursday’s inflation report showed why policymakers remain cautious.

The September personal consumption expenditures price index rose **3.6% from a year earlier**, with core inflation, which excludes food and energy, at **3.1%**. Both remained above the Fed’s 2% inflation goal. Prices increased 0.5% overall during the month and 0.3% excluding food and energy, according to the [Bureau of Economic Analysis release](https://www.bea.gov/news/2026/personal-income-and-outlays-september-2026).

Meanwhile, earnings from Microsoft and Alphabet showed that strong demand for artificial intelligence can produce very different outcomes for shareholders. Microsoft reported accelerating cloud growth. Alphabet’s cloud business more than doubled revenue, yet its broader results disappointed investors.

Together, the announcements put a sharper question in front of markets: how much growth can companies deliver while the cost of money stays elevated?

## The Fed’s pause leaves another increase on the table

The Federal Open Market Committee, chaired by Kevin Warsh, voted **10–2 to maintain its benchmark rate at 3.75%–4%** on October 28. Both dissenters—Lisa Cook and Beth Hammack—preferred a quarter-point increase.

The [official statement](https://www.federalreserve.gov/newsevents/pressreleases/monetary20261028a.htm) described strong economic activity, resilient domestic spending and robust capital investment. It also said inflation remained elevated and that further information would help determine the appropriate policy stance.

That combination leaves room for further tightening. The decision gives officials time to assess incoming data, but offers investors little basis for assuming that borrowing costs will soon fall.

For businesses funding data centers, energy projects or expansion through debt, the practical consequence is continued pressure to demonstrate that expected returns justify financing costs.

[Post from @federalreserve on X](https://twitter.com/federalreserve/status/2115504207977435556)

## Thursday’s data complicates the outlook

The first estimate of third-quarter GDP showed the economy expanding at a **3.4% annualized rate**, up from 2.2% in the second quarter. Investment, consumer spending and government spending contributed to the increase, while exports declined, according to [reporting on the BEA release](https://www.stocktitan.net/articles/q3-2026-gdp-growth-advance-estimate). The advance estimate remains subject to revision.

The monthly spending report added a less comfortable detail. September consumer spending increased 0.5% in dollar terms, but inflation-adjusted spending rose less than 0.1%. Much of the additional money spent therefore reflected higher prices.

Our reading is that these figures give the Fed competing considerations: an economy still expanding, alongside household spending whose purchasing power is making limited progress. Strong headline growth alone does not settle the inflation question.

## Microsoft delivers growth investors can measure

Microsoft’s fiscal first-quarter results offered concrete evidence of expanding demand for cloud services.

Revenue reached **$92.3 billion**, up 19% from a year earlier. Microsoft Cloud revenue increased 30% to **$63.9 billion**, while Azure revenue grew **48%**. Operating income rose 21% to $45.9 billion, according to the company’s [earnings release](https://www.microsoft.com/en-us/investor/earnings/fy-2027-q1/press-release-webcast).

Those figures strengthen the case that customers are spending on the infrastructure and software behind AI deployment. Microsoft’s cloud totals cover a broader business than AI alone, however, and should not be presented as pure AI revenue.

CEO Satya Nadella emphasized the economics of using that technology:

> “We are delivering greater capability, choice, control, and cost efficiency for customers across our entire stack.”
>
> — Satya Nadella, Chairman and CEO, Microsoft

For investors, efficiency matters alongside adoption. Selling more computing capacity creates value only if the revenue and eventual cash returns justify the infrastructure required to provide it.

## Alphabet shows how demanding expectations have become

Alphabet reported **$127.6 billion in quarterly revenue**, up 25%, while Google Cloud revenue increased 103% to **$30.7 billion**. Yet net income available to common shareholders declined to $26.2 billion from approximately $35 billion a year earlier, according to its [quarterly results](https://www.publicnow.com/view/ED018F4AAE12FB3B1BD1E9649EA9BF381E69B00F).

Revenue and earnings fell short of analyst expectations, and shares dropped more than 10% in after-hours trading, according to the [Associated Press](https://apnews.com/article/1acf6aff00d4dc084c5243d613307388). An $8.7 billion loss on equity investments contributed to the earnings decline—a separate issue from the operating performance of its cloud business.

The contrast with Microsoft illustrates the challenge facing AI investors. Rapid growth in one division can coexist with disappointing company-wide results. Expectations, spending commitments and the sources of profit all matter.

Nadella’s earnings thread provides Microsoft’s perspective on that expansion:

[Post from @satyanadella on X](https://twitter.com/satyanadella/status/2115577764300693644)

## Stocks and Bitcoin face the same financing backdrop

Wednesday’s regular session ended modestly higher: the S&P 500 gained **0.28%**, the Nasdaq Composite **0.27%** and the Dow **0.19%**, according to [Reuters](https://www.schwab.wallst.com/schwab/Prospect/research/stocks/news.asp?doc=3200-nL6N46E1B6-4&symbol=MSFT). Those closing returns preceded the full reaction to the technology earnings announcements.

The table below puts those daily moves in context, showing October-to-date and year-to-date performance through October 28.

![Market performance through October 28, 2026: S&P 500 close 7,743.98, October +1.21%, YTD +13.13%; Nasdaq Composite 26,549.85, October -1.16%, YTD +14.23%; Dow Jones 52,475.10, October +3.08%, YTD +9.18%; Bitcoin $81,287.10, October -2.73%, YTD -7.17%.](https://ik.imagekit.io/blockster/studio/inline/664391d2-c92a-4903-aea5-1fd0e72d25b0/46792f40-4a19-4f82-b7ad-e1e09831d709.png)

Market performance through October 28, 2026. Graphic: Blockster.

_Price returns calculated from September 30 and December 31, 2025 closes. Stock indexes use the U.S. market close and exclude dividends; Bitcoin uses midnight UTC daily closes. Sources:_ _[AP](https://apnews.com/article/7864eac2e13db75f07758ed9c39ad96b)__,_ _[September closing levels](https://portfolio-terminal.com/markets/stock-market-close/september-30-2026)__,_ _[2025 year-end levels](https://portfolio-terminal.com/markets/stock-market-close/december-31-2025)_ _and_ _[Maketo’s Bitcoin data](https://maketo.com/bitcoin/price)__._

The broader picture is mixed. The Dow has led October’s gains, while the Nasdaq remains ahead for the year despite slipping this month. Bitcoin has fallen over both periods, showing that its recovery has not kept pace with the gains in major U.S. stock indexes.

**Where to access these markets**

Investors can gain exposure to the S&P 500 through [SPY](https://www.ssga.com/us/en/individual/etfs/state-street-spdr-sp-500-etf-trust-spy), the Nasdaq Composite through [ONEQ](https://digital.fidelity.com/prgw/digital/research/quote/dashboard/summary?symbol=ONEQ), and the Dow through [DIA](https://www.ssga.com/us/en/individual/etfs/state-street-spdr-dow-jones-industrial-average-etf-trust-dia). These exchange-traded funds track the respective indexes, which cannot themselves be purchased directly.

Eligible U.S. customers can trade stocks and ETFs through [Coinbase](https://www.coinbase.com/stocks), [Kraken](https://www.kraken.com/stocks) and [Robinhood](https://robinhood.com/us/en/support/articles/investments-you-can-make-on-robinhood/), although availability of each fund depends on the platform and account. All three also offer direct Bitcoin purchases. Individual ETF returns can differ from the benchmark figures above because of fees, distributions and tracking differences.

In overnight trading ahead of Thursday’s session, S&P 500 futures fell about 0.5% and Nasdaq 100 futures roughly 1.2%, according to [TradingView’s morning report](https://www.tradingview.com/news/tradingview:f179290e6094b:0-spx-s-p-500-futures-slip-after-google-s-earnings-spoil-the-mood-globally/). Bitcoin traded near $80,100 early Thursday. These are overnight and early-morning observations, rather than Thursday closing prices.

For crypto, the Fed remains one influence among several. Blockster’s recent coverage of [Nexo’s fourth-quarter outlook](https://blockster.com/nexo-q4-bitcoin-market-outlook-fed-etf-demand) examined how ETF demand and investor positioning interact with monetary policy. Earlier reporting also tracked the pressure from [oil prices, Treasury yields and Bitcoin ETF withdrawals](https://blockster.com/bitcoin-oil-treasury-yields-october-8-2026).

The next test is whether fresh investment can sustain growth across these markets while financing remains expensive. AI companies must turn demand into durable profits. Crypto markets need continuing buyers. And the Fed still needs evidence that inflation is moving convincingly toward its target.