In its semi-annual financial stability report released on Friday, the Federal Reserve identified potential vulnerabilities stemming from artificial intelligence (AI) as well as elevated asset valuations.
"Asset valuation pressures remain elevated. Equity valuation metrics are still high, driven in part by market enthusiasm for 'super intelligence,'" the Fed said in the report, using President Donald Trump's preferred term for AI.
The Fed added that concerns about corporate capital expenditure and debt issuance plans have somewhat tempered this enthusiasm.
Michelle Bowman, the Fed's Vice Chair for Supervision, warned earlier this week that financial markets could pose risks to economic activity, including the possibility of sharp stock price declines if AI investment returns fall short of expectations.
Financing arrangements in the AI industry had already come under scrutiny, as "circular deals" between tech manufacturers and startups have raised market concerns.
The Fed's report is not an economic forecast. It also cited survey feedback from policymakers, community groups, and market participants, aiming to assess which risk events would cause the greatest concern if they were to occur.
These respondents pointed to rising risks of cyberattacks on financial markets, partly because advances in AI have lowered the threshold for both state and non-state actors to launch sophisticated attacks, while also amplifying the potential damage that AI models could cause.
In addition, they warned of potential near-term vulnerabilities arising from a pullback in risk assets, higher long-term interest rates, and fiscal debt sustainability issues.
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