After three days of record highs, Wall Street is in the red. 

Jerome Powell, the Fed’s chairman, spoke publicly for the first time since the vote last week on America’s benchmark interest rates.

Investors were hoping he’d outline upcoming interest rate cuts. He did not. 

Instead he spoke about the ‘challenging situation’ the Fed is facing with keeping stubborn inflation under control while keeping unemployment low. 

He also hinted that the stock market is overvalued, sending major stock indices falling. 

The S&P 500 declined by 0.6% on Tuesday afternoon, following its record-high closing on Monday. The Nasdaq Composite, known for its tech focus, decreased by 1%, while the Dow Jones Industrial Average slipped by 0.3%.

The Fed has a dual mandate to keep inflation around 2 percent and increase job growth through the government’s borrowing rates.

Rates are used as a blunt tool, swinging higher when prices climb, and plunging when unemployment accelerates. 

Fed chairman Jerome Powell spoke for the second time since the decision to cut rates

Last Wednesday, the Federal Reserve’s 12-member voting board reduced the nation’s key interest rate by a quarter percentage point. This marked the first reduction since December 2024.

Following this meeting, Wall Street has seen significant activity, with the expectation that subsequent meetings will result in further rate cuts, thereby facilitating easier cash flow for spending and investments.

However, Powell said the vote was tricky, following August data that showed more Americans were lining up at unemployment offices, and prices at grocery stores, mechanic shops, clothing retailers, and restaurants jumped. 

On Tuesday, Powell said he is focused on balancing the dual mandate after hawkishly following pricing and spending data for years in an effort to combat inflation.

‘The unemployment rate is low but has edged up,’ he said. ‘Job gains have slowed, and the downside risks to employment have risen.

‘In recent months, it has become clear that the balance of risks has shifted, prompting us to move our policy stance closer to neutral at our last meeting.’ 

Powell also said he thinks companies are responding to tariffs by slowing down hiring. 

‘Companies are holding off, they’re not hiring,’ Powell said at a luncheon on Tuesday. ‘That may be a way of passing off tariff costs.’ 

Fed chairman Jerome Powell warned on Tuesday that American companies are not immediately replacing employees – clearing some payrolls might be a way they’re paying for tariffs

Members of the Fed’s board are openly worried about housing construction slowdowns

For months, analysts have been warning that President Donald Trump’s tariffs would raise costs on Americans.

However, Powell said he has seen smaller-than-expected price spikes from tariffs. 

In April, when Trump initially unveiled his tariff plans, the Budget Lab at Yale University estimated that American households could face additional costs of up to $4,400 a year.

So far, that hasn’t happened. 

In May, the inflation rate dropped to 2.4 percent before climbing back to 2.9 percent in August. 

And Americans are continuing to spend, despite the higher prices. Last month, consumer spending moderately rose. 

But there is still underlying weakness in spending.

Construction workers have largely been on the sideline while home prices in multiple major cities are starting to drop. 

The compounding issues have led some Federal Reserve members to dissent with the Fed chairman openly.  

Powell’s comments also come a day after Stephen Miran, the Trump-backed governor who was temporarily appointed to the Fed last week, warned that a slow pullback of interest rates risks even more job losses. 

Miran was the only voting member who wanted a half-point cut. 

This morning, Austan Goolsbee, the President of Chicago’s Fed, told CNBC that the decision to cut rates despite higher-than-average inflation was not a sign that the Fed moved its consumer pricing goals. 

‘Heck no, we did not move the target,’ he said. ‘The target is 2 percent. We have to get inflation back to 2 percent, period.’ 

Speaking to the Kentucky Bankers Association, Michelle Bowman worried about a potential housing crisis. 

‘I am concerned that, in the current environment, declines in house prices could accelerate, posing downside risks to housing valuations, construction, and inflation,’ she said.