The threat of a “sharp repricing of US dollar assets” is looming over global markets, the Bank of England has warned, citing political attacks on the Federal Reserve as a key driver of risk. This concern was part of a broader caution from the Financial Policy Committee (FPC), which also sees a growing bubble in the artificial intelligence market.
The FPC report expressed significant unease about “continued commentary about Federal Reserve independence” from the Trump administration. It warned that if global perceptions of the Fed’s credibility were to change suddenly, it could result in a massive sell-off of US assets, including sovereign debt, leading to “increased volatility” and “global spillovers.”
This geopolitical risk is unfolding alongside a speculative frenzy in the tech sector. The FPC described equity valuations for AI companies as “stretched,” pointing to the massive market capitalizations of firms like OpenAI ($500 billion) and Anthropic ($170 billion). The committee fears these stocks are vulnerable to a crash if the hype around AI subsides.
The potential for a reality check is growing, supported by data such as a recent MIT study showing 95% of businesses are seeing no return on their generative AI investments. The FPC warned that a “sudden correction could occur” if investors begin to price in these risks and the potential for bottlenecks in AI development.
The FPC concluded that the UK is highly exposed to these dual threats. As a global financial centre, Britain would feel the full force of a US asset repricing or a tech market crash. The committee stated that the risk to the UK financial system is “material,” with the potential to disrupt credit availability for the entire economy.
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