Good morning, investors. Jerome Powell took it upon himself to move markets once again on Tuesday, with stocks retreating from their record highs after the Fed chair sounded off on lofty asset prices and risks in the labor market.

Let’s dive in.

Jerome Powell acknowledged that stock prices seem elevated, tariffs will have a limited impact on inflation, and there is no “risk-free” path ahead for the US economy.

The Fed Chairman’s comments from an event in Rhode Island were enough to drag stocks lower Tuesday, pulling major US indexes back from records.

Even after last week’s 25-basis-point rate cut, Powell still considers monetary policy “modestly restrictive” for an economy that’s largely exceeded expectations.

“The US economy is showing resilience in the midst of substantial changes in trade, in immigration policies, as well as in fiscal, regulatory and geopolitical arenas,” Powell said.

Still, he suggested asset prices are showing signs of froth, and policymakers take into account signs of investor enthusiasm.

“We do look at overall financial conditions, and we ask ourselves whether our policies are affecting financial conditions in a way that is what we’re trying to achieve,” he continued.

“But you’re right, by many measures, for example, equity prices are fairly highly valued.”

Meanwhile, Powell said the central bank will have to work hard to balance its dual mandate of price stability and maximum employment.

As he and his colleagues have reiterated over recent months, the balance of risks is tilted toward jobs at this moment, in part because the inflationary impact of tariffs has remained limited.

The tariff pass-through to consumers, Powell said, has been less than expected. That said, one-time price increases could follow in the next quarters.

“[Powell is] giving policymakers room to maneuver against political pressure, while softening the message by saying the impact will be short lived,” said David Russell, global head of market strategy at TradeStation.

“This maintains maximum flexibility in the time he has left as chairman.”

Fed Governor Michelle Bowman also spoke on Tuesday, and she too expressed more concern about jobs than prices. 

"I am also more confident that, as trade policy has become more certain, tariffs will have only a small and short-lived effect on inflation going forward,” she told the Kentucky Bankers Association. 

The latest signals from the labor market, Bowman added, “show that we are at serious risk of already being behind the curve.” 

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