• Fed survey finds policy uncertainty and geopolitics top financial stability risks

• Central bank independence cited as a concern for the first time

• Record government shutdown halts release of key economic data

• AI named as an emerging risk by 30% of Fed market contacts

• Worries grow that AI-fueled market gains could reverse sharply

• Fed warns that overvaluation and political pressure could test resilience in 2025

Policy uncertainty and geopolitical tensions have overtaken global trade as the top financial stability concerns in the Federal Reserve’s latest survey, while artificial intelligence has emerged as a new and significant source of risk.

The biannual Financial Stability Report, released on Friday, found that 61% of respondents cited policy uncertainty - including trade, central bank independence, and the availability of economic data - as a leading threat to financial stability. 

The findings mark a shift from April, when global trade risks dominated investor worries.

The survey, which gathers views from economists, investors, and market participants, shows how quickly the focus of financial risk has evolved. 

Concerns about U.S. trade policy have receded slightly, replaced by broader unease over the political environment and questions about the independence of the Federal Reserve itself.

For the first time, respondents flagged central bank independence as a key stability issue, following recent political interference in monetary policy. 

The survey follows President Donald Trump’s dismissal of Fed Governor Lisa Cook and his public criticism of Fed Chair Jerome Powell for not cutting interest rates as quickly or deeply as he prefers.

The mention of missing economic data as a risk is also unprecedented. The current record-long government shutdown has blocked access to several key economic indicators, leaving investors and policymakers with limited insight into the state of the economy. 

The absence of official data, respondents warned, complicates decision-making and increases the likelihood of market misjudgments.

Alongside political and policy worries, artificial intelligence has emerged as a notable stability risk. About 30% of the Fed’s market contacts identified AI as a potential trigger for financial disruption within the next 12 to 18 months.

The Fed said concerns centered on how investor enthusiasm around AI has fueled equity markets this year. A sudden reversal in sentiment, the report cautioned, could lead to sharp losses in tech-heavy indices and potentially spill over into the broader economy. 

“A shift in perceptions about the pace or profitability of AI adoption could result in large market corrections,” the report noted.

The growing role of AI in financial markets has divided opinion among regulators. Some see it as a long-term productivity driver, while others warn that speculative bubbles - particularly in tech stocks - could form faster than supervisory frameworks can adapt.

The Fed’s emphasis on AI follows warnings from other global financial authorities, including the Bank of England and the European Central Bank, which have both called for closer scrutiny of how AI models are used in trading, credit risk management, and compliance.

While the report did not suggest immediate systemic danger, it underscored that a combination of political instability, data gaps, and overvalued tech assets could test the resilience of U.S. financial markets in 2025.