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Federal Reserve Chair Jerome Powell speaks at an event in Rhode Island on September 23. / Source: AFP, Yonhap News

Federal Reserve Chair Jerome Powell cautioned that cutting interest rates too quickly could undermine efforts to tame inflation, sending U.S. stock markets lower on Tuesday as investors recalibrated expectations for additional easing.

Speaking at the Rhode Island Chamber of Commerce, Powell said, “If we lower rates too aggressively, inflation control could remain incomplete, leaving us at risk of having to pivot back to tightening later.” At the same time, he warned that keeping policy restrictive for too long could “unnecessarily weaken employment,” underscoring what he called a “two-sided risk” the Fed must balance.

The remarks signaled that despite the Fed’s first rate cut earlier this year, policymakers are not prepared to move swiftly toward further easing. Powell also issued a pointed warning about asset valuations, saying stock prices “appear significantly overvalued,” highlighting the Fed’s concerns not only over inflation but also potential overheating in financial markets.

Markets reacted sharply. Profit-taking hit technology shares, with all three major indexes closing lower. The Nasdaq dropped 0.95%, while the S&P 500 and Dow Jones Industrial Average also ended in the red.

Analysts said the comments reaffirmed the Fed’s “data-dependent” stance, indicating that decisions will hinge on inflation, labor market conditions, and broader financial stability. Investors’ hopes for rapid rate cuts are now likely to be tempered as the central bank signals caution.