Fed report says market contacts cited AI as top potential shock

Artificial intelligence was the most frequently cited potential shock among 23 market contacts surveyed by Federal Reserve Bank of New York staff, according to the Federal Reserve’s November Financial Stability Report. That puts AI-linked market, cyber and financing concerns at the top of this small group’s risk list, but it is not a Federal Reserve declaration that AI is the financial system’s largest threat.

In the official report, 87% of respondents cited AI as a risk over the next 12 to 18 months, up from 50% in the spring survey of 20 contacts. New York Fed staff collected the fall responses in September and October from professionals at broker-dealers, banks, investment funds and advisory firms.

The report is explicit about the survey’s limits: The box summarizes respondents’ views and “should not be interpreted as representing the views of the Federal Reserve Board or the Federal Reserve Bank of New York.”

Respondents’ concerns fell into three main channels. They pointed to elevated equity valuations that could reverse if AI-related earnings disappoint; AI-related cyber risk from sophisticated attackers or frontier AI models; and complex financing for AI investment. Some said stretched valuations, circular financing and debt-heavy funding for AI infrastructure could magnify losses from an equity correction and spill into business investment and household consumption.

Most frequently cited did not mean most severe. A risk-asset correction was cited by 52% of contacts, higher long-term interest rates by 48%, and cyberattacks and fiscal debt sustainability by 43% each. Respondents nevertheless viewed cyberattacks and fiscal debt sustainability as carrying the most severe potential consequences.

The Board’s formal monitoring framework tracks vulnerabilities across asset valuations, borrowing by businesses and households, financial-sector leverage and funding risks, while separately considering plausible near-term shocks raised through market outreach. In its own analysis, the report says a cyber incident could reduce market liquidity, erode investor and depositor confidence, force asset sales and spread across institutions through a disrupted critical third-party provider.

The Board published the report on Nov. 13 and said it generally reflects information available through Oct. 28.