Federal Reserve Names AI Primary Threat to Financial Stability

The Federal Reserve identified artificial intelligence as the primary threat to the financial system in its semi-annual Financial Stability Report released Friday. Survey data shows a sharp increase in the perception of AI as a salient risk, rising from 50% in May to 87% by October 2026.

Central to these concerns is a massive surge in advanced computing-related debt issuance, which reached $680 billion by October 2026, representing a fivefold increase over 2023 levels. The central bank estimates that total debt, guarantees, and leases for AI infrastructure could exceed $3 trillion. The report warns that complex interlinkages between data center firms, public credit markets, and private lenders create vulnerabilities that require close monitoring.

Beyond financing, the report highlights cybersecurity threats from AI models and state actors, as well as the potential for a market correction if AI-related earnings slow. Other significant risks include risk asset corrections, higher long-term rates, and fiscal debt sustainability. Additionally, the Federal Reserve noted that hedge fund leverage has reached its highest level since 2013.