Fed Chair Warns of Overvalued Stocks as Tariff Inflation Looms

As of October 15, 2025, Federal Reserve Chair Jerome Powell has expressed concerns over the U.S. stock market's elevated valuation. The S&P 500 index has surged 33% from its April 2025 low, reaching dozens of new highs despite a deceleration in economic growth.

Powell attributed this moderation in growth to a slowdown in consumer spending, with GDP rising at just a 1.5% pace in the first half of 2025, down from 2.5% the previous year. The Fed chair also noted that tariffs imposed by the Trump administration have started to push consumer prices higher, though companies have so far absorbed much of the cost increases.

However, Powell expects this inflationary pressure to "continue to build over the course of the rest of the year and into next year" as companies pass along a greater portion of the tariff burden to consumers. This tariff-induced inflation could pose a significant threat to the stock market, as it acts as a headwind to consumer spending and may force the Fed to raise interest rates.

Importantly, Powell warned that the S&P 500 currently trades at 22.8 times forward earnings, a material premium to the 10-year average of 18.6 times. He did not elaborate on specific multiples, but history suggests the index will eventually drop sharply when valuations reach such elevated levels.