Jerome Powell’s Stock Market Warning Just Reset the Clock on Rate Cuts

When a Federal Reserve Chair holds his final press conference, there’s a certain silence in the room. Reporters tilt forward a bit more. The questions become a little more philosophical. And if everyone in the room knew the speaker would return next month, the words—even the ones that sound cautious and bureaucratic—would not have the same weight. “The economic outlook remains highly uncertain, and the conflict in the Middle East has added to this uncertainty” is a statement that investors are still debating from Jerome Powell’s final appearance behind that podium.

His typical flat, purposefully unenthusiastic cadence was used to deliver the sentence. The kind he has employed during election years, tightening cycles, banking scares, and at least one irate presidential attempt to fire him. However, it was practically ignored by the markets, which had spent the preceding weeks recovering from a 9% decline to new record highs. In fact, in the days that followed, the S&P 500 slightly increased. There’s a feeling that traders chose to hear something different after hearing the warning.

What makes this moment intriguing is the discrepancy between Powell’s tone and the reaction of the market. Futures markets were projecting at least two rate cuts by December of 2026, with the first anticipated by April. That hasn’t occurred. For three straight meetings, the FOMC has kept the benchmark rate unchanged; this pause is beginning to resemble a subtle change in stance rather than patience. Economists at JPMorgan Chase have already revised their prediction to include no rate cuts for the rest of 2026 and a possible switch to rate increases in the third quarter of 2027. Nobody had written that script in January.

Sitting at the gas pump is the cause. Due in large part to the conflict in Iran and the general instability in the region, oil has been trading above $100 per barrel for weeks. March saw a 90 basis point increase in Consumer Price Index inflation to 3.3%, the lowest single-month reading in almost two years. The CPI for April is now predicted by the Cleveland Fed’s forecasting tool to be close to 3.6%. It is nearly impossible for the central bank to claim it is still on a glide path back to 2% inflation if that figure holds. Powell was aware of this when he took the microphone. The bond market followed suit, with yields beginning to rise in a matter of hours.

The fact that the S&P 500 isn’t priced for higher-for-longer rates is obscured by the headlines surrounding a stock market warning from Jerome Powell. It costs the opposite. The index is clearly higher than its five-year average of 19.9 times forward earnings, trading at 20.9 times. Only if you believe that rate reductions will eventually be made to support those future cash flows will that premium make sense. The math changes when the cuts are removed from the equation. Rates of discounts increase. Multiplies compress. The same earnings begin to lose value in today’s currency. This type of repricing doesn’t typically take place in a single day, but it doesn’t have to. It only needs to begin.

When you carefully read Powell’s warning again, there’s a hint of reluctance. He did not predict a recession. He did not foresee a correction in the market. Investors should probably take his statement that the situation is unclear seriously. As this develops, it’s difficult to avoid the impression that the market is placing a wager on a geopolitical outcome that no one in Washington is willing to support. The bulls will appear prophetic if tensions decrease and oil cools. The warning that landed softly last week will appear very different in hindsight if they don’t. For the time being, the outgoing Fed Chair told a different story than the S&P 500. There can only be one correct answer.