The Nasdaq fell 1% during the session, and Powell stated that stock market valuations are high, without hinting at a rate cut in October

On Tuesday, Federal Reserve Chairman Jerome Powell stated that asset prices are currently at a high level.

In a speech in Providence, Rhode Island, Powell was asked during a Q&A session how much he and his colleagues value market prices and whether they have a higher tolerance for high valuations. Powell said:

We do pay attention to overall financial conditions and ask ourselves whether our policies are affecting financial conditions in a way that aligns with our expectations. But you are right, by many measures, such as stock prices, they are indeed quite overvalued at the moment.

The term "assets" typically includes stocks and other risk-related instruments.

Ahead of last week's Federal Reserve policy meeting, as the market became increasingly convinced that the Fed would lower the benchmark interest rate, stocks and other assets surged significantly. Since the announcement of a 0.25 percentage point rate cut on Wednesday, the U.S. stock market has continued to climb, with several major indices reaching all-time highs.

In discussing mortgage rates, Powell mentioned: “The market listens to us and makes judgments based on that, estimating where they think rates are headed. Therefore, they incorporate those expectations into prices.”

Although Powell noted that stock market valuations are high, he also stated that it is not a time of heightened financial stability risks.

After Powell's remarks, U.S. stocks turned lower, with major indices falling across the board. The Nasdaq dropped 1% during the session, and the S&P 500 index fell over 0.6%. Large tech stocks led the declines, with Nvidia at the forefront. The yield on the 10-year U.S. Treasury bond fell 3 basis points to 4.12%. The dollar fluctuated. Gold held its record high. Oil prices rose amid tensions between NATO and Russia.

Regarding Powell's comments on the stock market, Evercore's Krishna Guha said:

While some hawkish Federal Reserve officials place great importance on market movements and believe this is a reason to be cautious about further rate cuts, this is not the view of Powell and the core group.

Powell declined a clear invitation to express concern about the stock market's rise or to suggest that the market's exuberance has caused the Fed to waver on its easing policies.

He agreed with the questioner's point that, by historical standards, stock prices are indeed highly valued and stated that the Fed will monitor financial conditions. However, he made it clear that the Fed's responsibility is not to focus on stock prices or determine what a reasonable valuation is. In other words, employment and inflation take precedence over stock prices.

Additionally, analysts noted that Powell's latest remarks did not provide any hints about whether the Fed would cut rates at the October meeting, nor did he say anything new, which contributed to the intraday decline in U.S. stocks.

Regarding Powell's latest remarks on Tuesday, David Russell of TradeStation said:

Powell is laying the groundwork for tariffs to push up inflation in the fourth quarter, leaving room for potential price pressures to rise. He has left officials with some leeway to respond to political pressures and has downplayed the impact by emphasizing that it is short-term.

Powell does not want to anger the White House, but he is also not easily compromising. He does not want to appear hawkish, but he is also avoiding the strong calls for significant rate cuts