Federal Reserve Governor Michelle Bowman said she sees a number of risks to economic activity from financial markets, including a sharp downturn in stock prices if returns on investments in artificial intelligence fall short of expectations.
Speaking in Washington on Tuesday, Bowman flagged the risk of “a large correction in equity valuations” stemming from AI returns, along with “a sharp increase in private longer-term rates.”
“Lower equity prices could undermine the resilience in consumer spending,” she said. “And higher interest rates could further strain interest-rate-sensitive sectors of the economy, like housing and small business investment.”
Bowman also signaled she could support an interest-rate hike at the central bank’s final meeting of the year next month, amid persistently elevated inflation.
“Today I am seeing signs that inflation pressures are persisting, while labor market conditions appear to be firming,” she said. “This indicates that there is still work to do to bring inflation closer to 2%.”