‘Sudden Correction’ Risk Grows as AI Hype and Fed Politics Collide, BoE Says

The risk of a “sudden correction” in global markets is growing as the potent combination of artificial intelligence hype and political pressure on the US Federal Reserve creates an unstable financial environment, the Bank of England has cautioned. The bank’s Financial Policy Committee (FPC) has sounded the alarm on these converging threats.
The FPC is particularly concerned about “stretched” equity valuations, especially among the tech companies at the forefront of the AI revolution. Valuations for firms like OpenAI ($500 billion) and Anthropic ($170 billion) have soared, but the committee warns this leaves the market exposed to a sharp downturn if the optimistic narrative around AI falters.
Recent research suggests the narrative is already on shaky ground. An MIT study showing that 95% of companies are getting zero return on generative AI investments highlights a major gap between market perception and economic reality. The Bank warned this could lead to a rapid and painful correction as investors adjust their expectations.
The political situation in the United States is adding another layer of significant risk. The FPC pointed to Donald Trump’s “continued commentary about Federal Reserve independence” as a threat to the credibility of the world’s most influential central bank.
If that credibility is damaged, the committee warned of a potential “sharp repricing of US dollar assets,” an event that would cause a spike in volatility and risk premiums globally. The FPC concluded that the “risk of spillovers to the UK financial system from such global shocks is material,” threatening the flow of finance to the British economy.