Policy uncertainty remains a top risk to U.S. financial stability, with public sentiment about artificial intelligence emerging as another risk, according to the Federal Reserve’s most recent Financial Stability Report, released today.
As part of the report, the Fed surveyed 23 professionals at banks and other financial sector firms about what they viewed as the top risks to financial stability. A majority continued to highlight concerns about policy uncertainty, including trade policy, central bank independence and the availability of economic data. They also cited geopolitical risk, persistent inflation and high long-term rates. A new concern was that prevailing sentiment toward AI, “which has been viewed as a main driver of recent U.S. equity performance, could lead to a correction in risk assets.”
“Participants noted that such a turn could lead to large losses in private and public markets and, if the declines were large enough, drive a further slowdown in the labor market and tighten financial conditions,” according to the report.
As for the financial sector, the report noted that the banking system remained sound and resilient, with historically high regulatory capital ratios. However, the authors added that banks’ fair value losses and exposure to interest rate risk “remained sizable.”
