Artificial intelligence has overtaken all other concerns as the most prominent risk facing the US financial system, according to the Federal Reserve’s latest financial stability report published on Friday. In the survey, 87% of participants highlighted AI as a key threat, sharply up from 50% in the spring 2026 survey.
AI risk rises sharply in financial sector concerns
The New York Fed conducted its biannual survey among 23 market contacts, which include economists, institutional investors, market analysts, and other financial sector participants. Respondents pointed to worries ranging from elevated equity valuations, the rise of AI-enabled cyberattacks, and complex AI-related financial products.
The report emphasized three main areas of concern: high equity valuations with the risk of a substantial market correction, growing cybersecurity threats powered by advanced AI models, and complications arising from AI-driven financing structures.
Respondents highlighted three specific risks: rising equity valuations that could result in a market downturn if corporate earnings disappoint, cybersecurity vulnerabilities rooted in powerful AI technologies or state-sponsored attacks, and uncertainties linked to intricate AI-related financial instruments.
Equity valuations were cited as the primary vulnerability. According to the survey, a shortfall in expected corporate earnings may trigger declining valuations and a subsequent correction in risk assets.
Cybersecurity, specifically AI-enabled attacks, was another major issue. Participants noted both the possibility of sophisticated state-sponsored hacks and the inherent dangers posed by emerging AI models.
The final major concern is the growth of complex AI-related financing, which can create new challenges for regulators and investors as the adoption of artificial intelligence accelerates.
Mini dictionary: AI hyperscalers, a term for large-scale data processing and computing platforms, provide massive resources necessary for advanced machine learning and artificial intelligence models used in finance and technology sectors.
Wall Street remains alert to the potential volatility linked to dominant AI hyperscalers and the swift proliferation of data centers supporting these technologies. Exit polls from recent midterm elections showed that 56% of voters regarded data centers as an important or major factor, reflecting growing public awareness around AI infrastructure and its economic impact.
Other leading risks and survey details
The Federal Reserve’s financial stability report is published twice every year to capture perspectives from various market contributors on system-wide risks up to October 28, just days before the US elections. The most recent survey revealed a surge in risk perception around AI, with its mention rising significantly since the prior report.
After AI, a correction in risk assets ranked second at 52%. Higher long-term interest rates were the third most cited concern, with 48% of respondents highlighting the threat.
Other top risks included cyberattacks and concerns over US fiscal debt sustainability, each mentioned by 43% of those surveyed. The report noted that these risks still lag considerably behind AI, trailing by over 35 percentage points. The fiscal outlook remains a concern as the national debt surpasses $40 trillion, with the budget deficit nearing $2 trillion.
| Risk Category | Cited by Respondents |
|---|---|
| Artificial Intelligence | 87% |
| Risk Asset Correction | 52% |
| Higher Long-Term Rates | 48% |
| Cyberattacks | 43% |
| Fiscal Debt Sustainability | 43% |
Despite these challenges, the Federal Reserve assessed the overall financial system as relatively stable. Nevertheless, the report highlighted that hedge fund leverage has reached its highest point since 2013, with risk concentrated in a small segment of the industry.
Hedge fund leverage is now at its highest level in more than a decade, a trend that raises concern due to its concentration in relatively few funds.
