Kansas City Fed President Warns of Too-Big-To-Fail AI Ecosystem

Kansas City Federal Reserve President Jeff Schmid warned on September 25 that the rapid expansion of the artificial intelligence industry may be creating a too-big-to-fail ecosystem. Speaking in Washington, Schmid argued that the Federal Reserve must analyze whether the network of firms and contracts involved in AI and data center development has become so systemic that it would require public bailouts in the event of a collapse.

Schmid drew a parallel between current AI growth and the 2007-2009 financial crisis, suggesting that the scale of the build-out could pose a threat to broader economic stability. He emphasized the necessity of understanding the internal dynamics of the industry to determine if these systemic risks are emerging.