Fed Governor Bowman warns of stock correction if AI returns fail
Federal Reserve Governor Michelle Bowman noted that lower equity prices could undermine consumer spending resilience if artificial intelligence investments do not meet expectations.
Federal Reserve Governor Michelle Bowman said on Tuesday in Washington that a sharp downturn in stock prices could occur if returns on artificial intelligence investments fall short of expectations, according to Mint.
Bowman flagged the risk of a large correction in equity valuations and a sharp increase in private longer-term rates. She stated that lower equity prices could undermine resilience in consumer spending.
The Governor also noted that higher interest rates could strain interest-rate-sensitive sectors such as small business investment and housing. She expressed concern regarding AI-related debt, noting that gains in corporate bonds, private credit and project finance are on track to exceed $800 billion this year.
Bowman indicated she could support an interest-rate hike at the final meeting of the year next month due to persistent inflation. She said inflation pressures are persisting while labour market conditions appear to be firming, indicating more work is needed to reach the 2% target.
In prepared remarks before the Council on Foreign Relations, Bowman said inflation has proven more persistent than she had anticipated. She previously backed the decision to hold rates steady in September to understand how economic conditions would evolve.
Other officials also commented on rates. Dallas Fed President Lorie Logan said the Federal Open Market Committee needs to implement at least two more 25-basis-point rate increases. Meanwhile, Governor Christopher Waller suggested the Fed should consider a half percentage point rate increase in December.
