The Federal Reserve released its semiannual financial stability report on Friday, highlighting potential vulnerabilities linked to artificial intelligence and elevated asset valuations. The central bank noted that equity valuation metrics remain high, partly driven by market enthusiasm surrounding AI technology.
Fed Vice Chair for Supervision Michelle Bowman warned that financial markets face risks if AI investment returns fail to meet expectations. Such a scenario could trigger a sharp decline in stock prices. Concerns have also been raised regarding circular trading arrangements between technology manufacturers and startups within the AI sector.
The report incorporates survey responses from policymakers, community groups, and market participants. Respondents identified increasing risks of cyberattacks on financial markets, noting that AI advancements have lowered the barrier for both state and non-state actors to launch sophisticated attacks.
Additional vulnerabilities identified in the report include potential corrections in risk assets, rising long-term interest rates, and challenges related to fiscal debt sustainability. The Fed emphasized that this assessment is not a forecast but rather an evaluation of potential risk events.
