A pair of key officials with the USFederal Reserve made public comments in the past week identifying potential risks to financial stability from artificial intelligence funding trends.
Fed Vice Chair Philip Jefferson, speaking at the 2025 Federal Reserve Bank of Cleveland Financial Stability Conference, emphasised the current AI boom does not display the risk hallmarks of the dot-com bubble. Similarly, Lisa Cook, a Fed Governor, stated at Georgetown University that the current funding of AI does not mirror the systemic risk that led to the Great Recession.
Both observe the system remains sound and resilient. Both identify ways that AI potential can enhance stability. Still, within one day of each other, the two Fed veterans laid out some traits of the AI revolution that bear watching as they assess safety within the nation’s banking system and beyond.
Jefferson and Cook promised to scrutinise the increasingly complex web of funding sources used by AI businesses to expand. Each is a voting member of the Federal Open Market Committee (FOMC).
Jefferson, on 21st November in Cleveland, noted AI may create challenges in the Fed’s dual mandate of price stability and maximum employment. Beyond that, the high degree of leverage from banks, private capital and non-traditional sources has the potential to cause deep losses if disappointment in AI emerges.
“Recent market reports suggest that AI firms may be increasing their use of debt, from both public and private credit markets, to fund substantial investments in computing infrastructure and talent acquisition,” Jefferson commented.
“Some analysts estimate that future investments in AI infrastructure will require a lot more debt. If that turns out to be the case, leverage in the AI sector could increase—and so could the losses if sentiment toward AI shifts,” he added. “I will watch this developing trend closely.”
Cook, Chair of the Board’s Committee on Financial Stability, says private credit itself is not an underlying risk. Speaking at Georgetown’s McDonough School of Business Psaros Center for Financial Markets and Policy in Washington on November 20, Cook said she is concerned about off-balance-sheet financing and other opaqueness.
“The increased complexity and the interconnections with leveraged financial entities create more channels through which unexpected losses in private credit could spread to the broader financial system,” Cook noted.
Speeches and other commentary by FOMC members are coming under greater market scrutiny this year because there is more dissent among the members amid the public pressure placed on the Fed by President Donald Trump, who demands lower interest rates. This is especially true of Cook, whom the Trump administration has threatened with fraud charges and removal.
At Georgetown, Cook urged more scrutiny of how AI can exacerbate collusion and market manipulation. She also called for greater understanding of the ability of hedge funds to destabilise the US Treasury market. She mentioned recent bankruptcies in the automotive sector revealing “unexpected losses and exposure across a broad range of financial entities, including banks, hedge funds and specialty finance companies.”
There may be a “likelihood of observing additional cases like those recently in the news increases when size of exposure and level of complexity in these arrangements are not transparent, when a sector experiences periods of rapid growth, and when these arrangements have not been through a full credit cycle,” Cook said. “Accordingly, I will continue to focus on ensuring that we understand developments in this sector and how these lending arrangements are evolving over time.”
Jefferson pointed out that Fed surveys reveal a growing concern that AI poses risks to the financial system and global economy, especially if investor sentiment sours on AI before the full build-out is achieved.
“Participants noted that if such an unwinding were to occur, it could tighten financial conditions and restrain economic activity more broadly,” Jefferson remarked. “I want to reiterate that I am monitoring the scenarios.”
