U.S. equity markets turned lower on September 23 after Federal Reserve Chair Jerome Powell remarked that stock prices appear to be “somewhat high,” sparking concerns about potential overvaluation.
Speaking at an event in Providence, Rhode Island, Powell responded to questions about how closely the Fed monitors asset prices and whether it is comfortable with current market levels.
“We look at overall financial conditions and assess whether our policies are influencing them in the way we intend,” Powell explained. “But you are right — by many measures, for example equity prices, valuations are somewhat elevated.”
His comments came against the backdrop of record-breaking rallies in major indexes following last week’s Federal Open Market Committee (FOMC) meeting, where policymakers voted to cut interest rates by 25 basis points.
Markets reacted swiftly to Powell’s cautious tone, with all three major U.S. indexes closing lower on the day.
The S&P 500 slipped 0.55% to 6,656.92 after hitting a fresh intraday record earlier in the session, following an all-time closing high on September 22.
The Nasdaq Composite dropped nearly 1% to 22,573.47, led by sharp declines in tech heavyweights Nvidia, Oracle, and Amazon.
The Dow Jones Industrial Average fell 88.76 points, or 0.19%, to 46,292.78.
The reversal highlighted just how sensitive equity markets remain to policy signals from the Fed, particularly in a period of monetary easing.
Despite acknowledging high valuations, Powell downplayed concerns about systemic financial risk.
“Markets listen to us, they watch us, and they anticipate where rates may be headed. From there, they price assets,” Powell said during a discussion on mortgage rates.
According to analysts, Powell’s remarks should be viewed more as a note of caution than a warning of imminent policy shifts. Still, by drawing attention to lofty valuations, the Fed chair may have tempered investor enthusiasm about near-term earnings prospects.
Economists believe Powell’s message reflects the Fed’s dual challenge: continuing to support growth through lower borrowing costs, while also signaling awareness of potential asset bubbles.
With interest rates recently cut, investors had grown more optimistic, driving equities higher. However, Powell’s suggestion that stocks are already “somewhat high” underscores the risks of overheating.
Market watchers now expect future Fed communications to play a crucial role in shaping investor sentiment. Any additional comments on valuations, inflation trends, or the labor market could sway expectations about the trajectory of interest rates.
For now, Wall Street appears to be recalibrating its outlook. While the Fed remains committed to supporting the economy, Powell’s remarks remind investors that monetary easing does not come without risks.
The coming weeks will likely see heightened attention on Fed speeches, economic data releases, and earnings season to determine whether markets can sustain their upward momentum or face a broader correction.
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