Fed Chair Powell Warns of Overvalued Stocks Amid Inflation and Labor Market Risks

Federal Reserve Chair Jerome Powell triggered a market dip after stating equities appear 'fairly highly valued' during a speech in Rhode Island. The S&P 500 slid to intraday lows following his remarks, despite delivering 35% returns since April's tariff-driven slump. Powell framed current valuations as elevated against historical benchmarks.

Tariffs remain a lingering concern, with the Fed projecting a one-time economic pass-through effect lasting through 2026. The central bank faces a delicate balancing act—Powell emphasized 'two-sided risks' in monetary policy. Cutting rates prematurely risks unleashing inflation, while maintaining restrictive policy could weaken employment.

Last week's 25-basis-point rate cut was characterized as a 'risk management' measure to address labor market fragility. The Fed continues navigating its dual mandate of price stability and maximum employment amid global trade uncertainties.