The Bank for International Settlements (BIS), often called the central bank for central banks, has issued a stark warning. It suggests that the current frenzy around artificial intelligence could lead to a stock-market slump and threaten the broader economy.
Rich stock market valuations and investor complacency are key concerns, according to the BIS annual report. The report highlights that excessive optimism around AI may have pushed asset prices beyond sustainable levels.
Circular financing, where money flows in a loop between tech firms and investors, has added to the risk. This pattern can inflate bubbles, making the market vulnerable to sudden corrections.
The BIS also points to potential knock-on effects in credit markets. A sharp downturn in equities could spill over into lending, squeezing businesses and households.
Central banks should remain vigilant, the report notes, as financial stability depends on managing these emerging risks. The warning comes as global markets continue to ride the AI wave.
Investors have poured billions into AI-related stocks, driving up indexes like the S&P 500. Yet, history shows that technological hype can outpace reality, leading to painful corrections.
The BIS cautions that if sentiment shifts, the fallout could ripple through the entire financial system. Policymakers must prepare for scenarios where exuberance turns to panic.
