Federal Reserve staff wrote that the equity premium on U.S. stocks was at a level that had only been lower in recent history during the dot-com bubble. The line comes not from a speech, but from the written minutes of the Fed’s July 28-29, 2026 policy meeting, published August 19. Staff wrote that the “equity premium — the forward earnings-to-price ratio adjusted for the level of long-term interest rates — was at a level that has only been lower in recent history during the dot-com bubble.”
That single sentence has been circulating in financial media for weeks, often folded into coverage of Fed Chair Kevin Warsh’s separate, hawkish-sounding remarks at the Jackson Hole Economic Policy Symposium on August 28. The two are related but not the same thing, and the distinction matters for anyone trying to understand what the Fed is actually signaling ahead of its September 15-16 meeting.
Key facts
- What: Fed staff minutes said the market’s equity risk premium is near its lowest level since the dot-com bubble.
- When: from the Fed’s July 28-29, 2026 meeting; minutes published August 19.
- Fed chair: Kevin Warsh, confirmed 54-45 by the Senate, sworn in May 22, 2026 as the 17th chair, succeeding Jerome Powell.
- Warsh’s Jackson Hole speech: August 28, focused on inflation running at 3.7%, not on the equity premium.
- Dissenting voice: Fed Governor Christopher Waller turned dovish on September 3, citing signs of disinflation.
- Next data point: August CPI report due September 11.
- Fed’s decision: The Fed’s policy-setting committee (FOMC) meets September 15-16; rate announcement expected September 16 at 2:00 p.m. ET.
- Latest odds (Polymarket, September 5-6): about 51% for holding steady vs. 50% for a quarter-point hike.
What the minutes actually measure
The equity premium the minutes describe is a specific valuation yardstick: it takes the stock market’s forward earnings yield (expected profits divided by price) and adjusts it for where long-term interest rates sit. When that gap narrows, stocks are priced expensively relative to the safer return available from bonds. The minutes say that gap is about as thin as it’s been at any point in recent decades outside the late-1990s dot-com run-up.
The minutes don’t call today’s market a “bubble.” They describe elevated valuations as being supported by strong corporate profits and enthusiasm around artificial intelligence, and they separately flag hedge-fund leverage as a vulnerability worth watching. That’s a narrower, more technical statement than a declaration that stocks are overvalued and due for a fall — it’s a staff assessment of one metric, not a market call from the Fed’s leadership.
What Warsh actually said at Jackson Hole
Warsh — confirmed by the Senate in a 54-45 vote and sworn in as the Fed’s 17th chair on May 22, 2026, succeeding Jerome Powell — delivered his own speech the following month. It doesn’t contain the phrase “equity risk premium” and doesn’t repeat the dot-com comparison. His focus was inflation. He said the Fed’s preferred inflation gauge was running at 3.7% in the year through July, well above the Fed’s 2% target, and called that “concerning.” “Inflation is running above our 2 percent target,” he said. “So the Fed’s predominant focus right now should be on prices… We must be confident that underlying inflation is moving to our objective, clearly and at sufficient speed. Otherwise, we have work to do.”
He did touch on markets, but in passing and without a verdict. He noted that S&P 500 companies’ profits had grown more than 20% over the prior year and that profit margins are “quite elevated, relative to history.” He also said he’d be “hard pressed to describe broad financial conditions as restrictive” and that credit and loan markets are “showing few signs of policy restraint” — observations about financial conditions, not a specific stock-market warning. He explicitly declined to signal how he’d vote in September, saying he’s “committed to a discipline, not to a decision.”
So while headlines have sometimes blurred the two documents together as “the Fed’s warning,” the record is more precise: the equity-premium language is a Fed staff finding from the July minutes, and Warsh’s hawkish tone in August is a separate, related but distinct signal about inflation.
Not every Fed official agrees
Warsh isn’t speaking for a unanimous committee. Fed Governor Christopher Waller — a different official, not to be confused with the chair — struck a notably different tone on September 3. Waller said recent data suggest “we are finally seeing some signs of disinflation,” and that if that trend holds up in upcoming reports, he “would be inclined to support holding the target for the federal funds rate at its current setting.” He left the door open to a hike if inflation “comes in hot,” but his baseline leaned toward standing pat.
Rate-hike odds fell by roughly 15 percentage points following Waller’s remarks, per CNBC’s coverage.
Why the odds keep swinging
Anyone searching for “the” current probability of a September rate hike will find a moving target, and that’s worth walking through in order rather than picking one number:
- Before August 28 (ahead of Warsh’s Jackson Hole speech): market-implied odds of a quarter-point hike were running in the mid-30s to low-40s percent.
- Late August, in the days right after the speech: CME Group’s FedWatch tool put the odds at roughly 66% that week.
- September 3, after Fed Governor Waller’s dovish remarks: those odds pulled back down.
- The days that followed, after a strong August jobs report showed 162,000 jobs added: odds climbed partway back up again.
- September 5-6, the freshest reading found: the prediction market Polymarket showed close to an even split — 51% odds of the Fed holding rates steady versus 50% for a quarter-point hike. Those two figures add up to slightly more than 100%, which is normal for a prediction market rather than a sign either number is wrong: each outcome trades as its own contract, with its own order book and bid/ask spread, and quotes are sampled at slightly different moments — so implied probabilities can overshoot or undershoot 100%. Read them as “roughly even odds,” not as a precise split.
The swings reflect both disagreement inside the Fed and traders repricing the odds after new officials’ comments and economic data.
What happens between now and the decision
Two things stand between here and the Fed’s answer. The August Consumer Price Index report is due September 11 and is widely seen as the data point most likely to tip the decision one way or the other. Then the FOMC meets September 15-16, with the rate announcement expected September 16 at 2:00 p.m. ET, alongside updated economic projections. Nothing about the outcome is locked in — Warsh’s hawkish tone, Waller’s dovish signal, and the CPI report are all still live inputs into a decision that hasn’t been made.
What the historical parallel is — and isn’t
The financial-news site Motley Fool has drawn a comparison to May 2002, when the S&P 500’s equity risk premium also fell below roughly 2.5% for about five consecutive months — a level similar to what’s being described in current reporting — and the index went on to decline about 16% over the following year. That comparison comes from Motley Fool’s own analysis, not from the Fed itself, and it describes what happened after a similar reading once before, not a forecast for what will happen this time. The Fed’s own minutes make a valuation observation; they don’t predict a market decline.
Bottom line
For readers trying to size up what any of this means practically: nothing changes at the Fed today. The federal funds rate remains unchanged until the September 15-16 meeting concludes. What’s worth watching between now and then is the August CPI report on September 11, and whether upcoming comments from Fed officials tilt back toward Warsh’s hawkish framing or Waller’s more cautious one.
Sources and further reading
- Kevin Warsh takes oath of office as chairman…
- FOMC Minutes, July 28-29, 2026
- federalreserve.gov
- PN855-1 – Nomination of Kevin Warsh for Federal Reserve System
- Minutes of the Federal Open Market Committee, July 28-29, 2026 (press release)
- Keynote remarks by Chairman Warsh at the 2026 Jackson Hole Economic Policy Symposium