Bank of England: Political Threats to Fed Amplify AI Bubble Dangers

Political threats to the US Federal Reserve are amplifying the dangers posed by a potential bubble in the artificial intelligence sector, the Bank of England has warned. The Financial Policy Committee (FPC) concluded that this combination of risks has made a “sharp market correction” more likely.
The FPC report highlighted Donald Trump’s “continued commentary about Federal Reserve independence” as a major source of instability. It cautioned that any event undermining the Fed’s credibility could spark a “sharp repricing of US dollar assets,” sending shockwaves of volatility through the global financial system.
This political risk is emerging while the tech market is already showing signs of speculative excess. The FPC described the valuations of AI companies as “stretched,” pointing to the enormous market capitalizations of firms like OpenAI ($500 billion) and Anthropic ($170 billion). These valuations, based on future hype, are seen as a significant vulnerability.
The hype is being questioned by new data, including an MIT study that found 95% of businesses are not yet profiting from their generative AI investments. The Bank fears that a “sudden correction could occur” if this lack of return leads to a broader loss of investor confidence in the AI narrative.
The FPC stressed that the UK is highly exposed to this dual threat. A crisis originating in the US, whether from a tech crash or a loss of faith in the Fed, would create “material” spillover effects. This could lead to a sudden tightening of financial conditions in the UK, harming both businesses and households.