Threats from artificial intelligence topped the list for greatest risks to the financial system, far exceeding any other dangers, according to respondents who participated in a Federal Reserve survey released Friday.
The central bank's twice-yearly look at a variety of dangers saw a surge in respondents saying that the biggest danger comes from AI along several fronts including debt, stock market valuations and security risks.
"Respondents noted three distinct areas of concern: (1) elevated equity valuations and the possibility that lower-than-expected earnings could result in lower valuations and a market correction; (2) cybersecurity risk, stemming from either a malicious attack by sophisticated state actors or damage caused by frontier AI models themselves; and (3) risks associated with complex forms of AI-related financing," the report stated.
The report comes with Wall Street on edge over high-flying AI hyperscalers, while communities are on alert for the rapid spread of data centers used to power the technology. Some 56% of voters in this month's midterm elections said data centers were of crucial or major importance in their choices, according to exit polling.
Respondents to the Fed survey released Friday include a variety of market participants, economists, analysts and institutional sources. The report covers the period up to Oct. 28, just a few days shy of the election.
Of the group, 87% cited AI as a "salient risk" to the system. That was up from 50% in the survey during the spring of this year and well ahead of the next most-cited danger, a risk asset correction, which was mentioned by 52% of those surveyed.
Other leading risks were higher long-term rates (48%), cyberattacks (43%) and fiscal debt sustainability (43%), the latter coming with the U.S. debt over $40 trillion and the budget deficit near $2 trillion.
The report otherwise found the system fairly stable, though it mentioned that hedge fund leverage is at its highest since 2013 and concentrated on a relatively small group.