‘Dean Of Valuation’ Aswath Damodaran Calls Fed Rate Debate ‘Pointless’ — Says 'There Is Little' That Kevin Warsh Or Scott Bessent Can Do

• Damodaran noted that the 10-year Treasury yield rose from 4.18% to 4.75%, while longer-term yields crossed 5%.
• He said higher rates do not always hurt stocks because companies can adjust their cash flows.
• Damodaran said mega-cap companies drove tech’s gains and called the carry trade “the laziest of investment strategies.”

Aswath Damodaran, widely known as Wall Street’s “Dean of Valuation,” called the debate over the Federal Reserve’s interest-rate policy “pointless,” saying there is little Fed Chair Kevin Warsh or Treasury Secretary Scott Bessent can do to alter borrowing costs without a shift in inflation expectations or economic growth.

His comments come as U.S. debt exceeds $40 trillion, long-term Treasury yields hit two-decade highs, and investors await the Fed’s September policy meeting next week. On Thursday, the SPDR S&P 500 ETF Trust (SPY) fell 0.6%, while the tech-heavy Invesco QQQ Trust (QQQ) slid 1.1% and the SPDR Dow Jones Industrial Average ETF Trust (DIA) declined 0.6%.

Damodaran Calls Fed Rate Debate ‘Pointless’

Damodaran rejected the view of the Fed as an “all-powerful force” controlling interest rates, calling the assumption “simplistic and wrong-headed.” Long-term yields, he argued, are primarily determined by inflation expectations, real economic growth and bond-market supply and demand. “Much of that debate, in my view, is pointless, since the pathway of rates is and will continue to be set by fundamentals,” Damodaran said.

“For rates to change significantly, up or down, there has to be a break in inflation expectations, to the up or downside, and there is little that Kevin Warsh or Scott Bessent can do to alter that trajectory.”

The 10-year Treasury yield climbed from 4.18% at the beginning of 2026 to 4.75% by the end of August, while 20- and 30-year yields crossed 5%. Damodaran’s “intrinsic risk-free rate,” based on inflation and real GDP growth, stood even higher at 5.41% in September.

Despite surging oil prices, long-term expected inflation has risen only modestly. Damodaran also found little evidence that the Fed’s four 2026 meetings, or Warsh’s appointment, drove the rise in yields.

Damodaran Says Fundamentals Drive Interest Rates 

Damodaran challenged the assumption that rising interest rates automatically reduce stock prices. Unlike fixed bond payments, corporate cash flows can change as companies raise prices, protect margins or reduce reinvestment.

“The effects of higher interest rates will therefore vary across companies, with some companies seeing decreases in value, some seeing no impact, and some benefiting with higher value, because their cash flows rise more than enough to compensate for higher discount rates,” he said.

According to Damodaran’s analysis of daily market data through Aug.31, the S&P 500 fell nearly 0.5% on average when the 10-year Treasury yield rose by more than three basis points and gained about 0.5% when the yield declined by more than three basis points. 

Damodaran: Why Higher Rates May Not Hurt Stocks 

Damodaran credited stronger profits for the market’s resilience. “The secret to equity resilience in the face of higher oil prices, interest rates and political turmoil has been in equity earnings, which have surged over the course of 2026,” he said.

Citing consensus data from Ed Yardeni, Damodaran noted that analysts raised their aggregate S&P 500 earnings estimates by more than 11% for both 2026 and 2027 during the first eight months of this year. While he still had questions about how companies were reporting AI’s effect on earnings, he added that “at least on the surface, the numbers are impressive.”

Damodaran noted that the tech sector gained 25.22% on an aggregate market-cap basis in 2026 through August, while the median tech stock rose only 7.75%, indicating that the largest companies drove much of the sector’s performance. 

He said that rising yields had increased borrowing costs and disrupted carry trades, though bond losses remained well below 2022 levels. “The carry trade is the laziest of investment strategies,” he added. 

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