Fed Chair Kevin Warsh and the FOMC Just Fired a Warning Shot at the Second-Priciest Stock Market in History

This has been a year highlighted by a changing of the guard. Longtime CEOs Warren Buffett and Tim Cook handed over the keys to their respective successors, and President Donald Trump’s Fed chair nominee, Kevin Warsh, became only the 17th head of the central bank on May 22.

Despite these changes, Wall Street’s preeminent stock indexes, the Dow Jones Industrial Average (^DJI +0.83%), S&P 500 (^GSPC +0.59%), and Nasdaq Composite (^IXIC +0.64%) have been unstoppable. The artificial intelligence (AI) infrastructure build-out and otherworldly growth prospects accompanying this game-changing innovation have lifted the broader market to new heights.

But sustaining this AI-driven bull market could be easier said than done. Last week, Fed Chair Warsh and his Federal Open Market Committee (FOMC) colleagues fired an unmistakable warning shot at the second-priciest stock market in history. The only question is: How many investors are paying attention?

The Federal Reserve’s rate-hiking cycle is ramping up

On Sept. 16, Warsh and 11 other voting members of the FOMC unanimously raised the federal funds target rate by 25 basis points to 3.75%-4.00%. It’s just the fourth time this century that the central bank has kicked off a rate-hiking cycle.

Warsh and the FOMC have been compelled to act because of persistently elevated inflation. August marked the 66th consecutive month in which the annualized inflation rate topped the FOMC’s long-term 2% target.

🇺🇸 FED CHAIRMAN KEVIN WARSH SAID:

“The plain fact is that inflation is too high and has been for too long,” https://t.co/htRQqyQHtr

— Evan (@StockMKTNewz) September 16, 2026

While rising prices are perfectly normal in an expanding economy, inflation has soared in 2026 due to Trumpflation (inflation that’s specifically driven by President Trump’s policies). Donald Trump’s tariffs are increasing domestic manufacturing costs, while the Iran war has led to the ongoing closure of the Strait of Hormuz. The largest energy supply disruption in modern history has sent fuel prices soaring.

The newly released Federal Reserve meeting minutes (effectively a summary of what policymakers discussed behind closed doors on Sept. 15-16) point to tariffs, the Iran war, and the AI infrastructure build-out as key sources of inflation.

More importantly, the Fed meeting minutes charted a path forward for interest rates. Contained in the Fed minutes was this statement:

With regard to the outlook for monetary policy beyond this current meeting, most participants assessed that another increase in the target range for the federal funds rate would likely be appropriate by year end.

While this statement doesn’t tell us whether the FOMC would raise interest rates at the October or December meeting, it makes it crystal clear that additional rate hikes are expected in the not-too-distant future. That’s terrible news for a historically expensive stock market.

Stock Market Shiller PE Ratio on the verge of taking out its Dot Com Bubble all-time high 🚨 🤯 👀 https://t.co/CtCmSgWnLt

— Barchart (@Barchart) July 11, 2026

A truly jaw-dropping amount of capital is being spent on the AI data center build-out, part of which has been financed with debt. If lending costs rise, as the FOMC’s September meeting minutes imply, it could slow this expansion and adversely impact lofty growth expectations.

In June, the S&P 500’s Shiller Price-to-Earnings Ratio came within a stone’s throw of surpassing the priciest valuation multiple in 156 years, achieved just before the dot-com bubble burst. This is a stock market with little to no margin for error. If the Fed’s rate-hiking cycle ramps up, maintaining this aggressive AI build-out without any “hiccups” would likely prove impossible.