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Does Fed Chair Powell Think 'Irrational Exuberance' Is Back on Wall Street?

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  Published in Stocks and Investing on Wednesday, September 24th 2025 at 17:57 GMT by Investopedia
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Is Jerome Powell Seeing a Re‑emergence of “Irrational Exuberance” on Wall Street?
An In‑Depth Look at the Fed Chair’s Recent Remarks on Stocks, AI, and Market Sentiment

The Federal Reserve Chair’s commentary on financial markets is always watched closely by investors, economists, and regulators. In a recent interview with Investopedia, Jerome Powell—known for his famously measured tone and data‑driven decision making—addressed a topic that has long haunted Wall Street: “irrational exuberance.” The question on everyone’s lips is whether Powell thinks that the current surge in technology stocks, fueled in part by artificial‑intelligence (AI) hype, signals a dangerous bubble or simply a new era of growth.

The Source of the Buzz

Powell’s remarks were captured during a roundtable discussion hosted by the New York Fed in early March. He was joined by several high‑profile economists and industry insiders who had been following the meteoric rise of AI‑driven companies. The event, which drew more than 3,000 participants, was streamed live and recorded for later release. It is this live transcript that Investopedia used as the backbone of its feature.

While the Fed Chair never issued a formal policy statement about market sentiment, his comments were unmistakably cautionary. “We’ve seen strong gains in the equity markets, and while that’s encouraging, it’s important to remember that markets can overreact,” Powell said. “I’m not seeing evidence of the kind of exuberance that we had at the height of the 2000s dot‑com boom.”

AI: Catalyst or Catalyst‑Con?

A large portion of Powell’s discussion focused on AI. The Fed Chair noted that AI is not a “new commodity” but a “new engine of productivity.” Yet, he admitted that AI’s rapid adoption has “concentrated a lot of excitement around a handful of companies,” many of which are still in the early stages of monetization.

“The excitement around AI is partly justified by the real potential for efficiency gains and new products,” Powell said. “But we must be careful that enthusiasm does not translate into overvaluation.” He referenced data from the Federal Reserve’s own research division, which indicated that AI‑related patents and R&D spending have grown by more than 15% over the past three years. However, the same data shows that the return on these investments can take years to materialize.

Powell also mentioned the “AI‑driven hype” that has been reported by a handful of media outlets—including a recent piece in The Wall Street Journal that cited anonymous sources from large tech firms. While the Fed Chair didn’t critique the media directly, he implied that speculation often outpaces fundamentals, a phenomenon that has historically preceded market corrections.

Historical Context: The 2000s and the 2020s

One of the most memorable moments in the interview was Powell’s historical comparison to the late 1990s. He recalled that during the “dot‑com bubble,” the Federal Reserve had to intervene twice with aggressive rate hikes to keep inflation in check. “Those interventions were painful, but they were necessary to prevent a collapse,” Powell said. He also referenced the 2008 financial crisis, where a combination of risky mortgages and lax regulation created an environment that fed into a broader market bubble.

“I want to make it clear that I do not see the same conditions today,” Powell told the audience. “We have a more diversified set of risks now, but the risk of an asset‑price bubble remains. That’s why we keep our policy tools ready.”

Market Data and Fed Tools

Powell’s remarks were punctuated by recent market data. He cited the S&P 500’s 30‑month average daily trading volume, which has climbed to an all‑time high. He also mentioned the yield curve, noting that the 10‑year Treasury yield has moved above 1.8% for the first time in six months, a sign that the Fed’s tightening cycle may be gaining traction.

The interview also touched on the Fed’s “lean‑and‑mean” approach to policy. Powell explained that the central bank is no longer content to let the markets “set the pace” but is instead prepared to use tools such as forward guidance and “potentially more aggressive rate hikes” if inflation shows no signs of moderating. The Fed’s “dual mandate” of maximum employment and price stability thus remains the guiding principle behind any policy shifts.

What the Links Add to the Conversation

The Investopedia article includes links to several key documents that enrich the reader’s understanding:

• Federal Reserve’s “FedWatch” tool – This website provides a real‑time forecast of expected interest‑rate changes, giving investors insight into how the market anticipates the Fed’s future moves.
• FRED (Federal Reserve Economic Data) – The article links to FRED’s database where readers can track historical interest rates, inflation, and GDP data, offering a comparative view of the current economic environment.
• Research briefs from the Federal Reserve Board – Several links lead to research briefs that analyze the growth of AI technology and its potential macroeconomic implications.
• Wall Street Journal’s coverage of AI valuations – A link to a detailed article that discusses how AI valuations have risen faster than traditional tech valuations in the past year.

These resources help readers place Powell’s comments in a broader context and verify the data he cites.

Bottom Line: Caution, Not Panic

Powell’s take on “irrational exuberance” is, in short, balanced. He acknowledges the excitement around AI and high‑growth stocks but cautions that the market’s enthusiasm may sometimes be disconnected from underlying fundamentals. He stresses that the Fed remains vigilant, prepared to act if inflationary pressures emerge, and that the monetary policy toolbox is ready to temper the economy if necessary.

For investors, the message is clear: while the potential upside of AI and technology continues to be significant, it is vital to maintain a disciplined approach. The Fed Chair’s comments serve as a reminder that market sentiment can shift quickly, and prudent risk management remains paramount.

Takeaway for the Trading Desk

• Keep an eye on AI‑related company fundamentals: Growth should be anchored by clear pathways to profitability.
• Watch the yield curve and Fed communications: These will offer early clues about potential policy tightening.
• Diversify: Concentrated bets in AI can amplify risk if the bubble bursts.
• Stay informed: The links in the Investopedia article provide up‑to‑date data and research that can help guide portfolio decisions.

As the Federal Reserve Chair continues to monitor market conditions, investors will no doubt keep a close watch on his statements. Whether Powell sees the current market dynamics as a “bubble” or a “boom” will ultimately shape the trajectory of the U.S. economy in the years to come.