Federal Reserve officials are weighing whether the surge in investment driving the AI buildout is creating risks for the financial system, with concerns centered on rising debt, uncertain returns, and complex financing structures. The debate comes as data-center spending approaches levels that, while still below the housing boom that preceded the 2008 crisis, are growing at a faster pace relative to GDP.
New York Fed President John Williams said in an interview that he doesn't see a bubble forming. "What we're seeing is a very high level of excitement, enthusiasm around new technology, around AI," Williams said. "Investors are trying in real time to solve an almost intractable problem, and that is how big are the benefits of AI going to prove to be."
Williams said trying to answer those questions will lead to volatility. He acknowledged that borrowing to support AI investment has increased, but said it's being managed by companies with strong earnings. "I'm not as worried about the financial stability from the leverage right now," he said.
How AI investment compares to past booms
Apollo chief economist Torsten Slok said in a research note that the data-center buildout is still less than half the size of the housing boom, which peaked at 6.6% of GDP in 2005. The investment pace relative to GDP, however, has been growing faster than housing did in the run-up to the global financial crisis.
For finance teams tracking where the next systemic risk could emerge, the comparison is a useful benchmark. The same questions about leverage and exposure that defined the housing crisis are now being asked of AI-related assets, and finance professionals can follow AI for Finance coverage to stay current on these dynamics.
Deeper concerns at the Fed
Kansas City Fed President Jeff Schmid is less sanguine. In a speech Tuesday, he asked whether the AI industry is becoming "another too big to fail," pointing to the flow of financing and how a problem at one stage could spread to others.
"Does the circular motion of a commitment, let's say a contractual commitment to a data center to an energy provider … to a community that it serves, is that, is that circle getting too leveraged?" Schmid asked. "And if you get a spark that starts a flame, what happens?"
San Francisco Fed President Mary Daly said Wednesday that if you look at the growth rate and amount of AI investment, you could easily call it "very worrisome." But she noted that many commitments in the AI space are still announcements that haven't become physical realities, reducing the risk of stranded assets. The rise of borrowing to fuel growth, however, might be an issue, she said.
For the Fed, Daly said, "It's really about putting a dashboard together, not of the things that happened in the financial crisis, but what could go wrong that would tip this over."
Why this matters for finance
For finance professionals, the Fed's attention on AI investment signals that AI-related assets are becoming a measurable part of the financial system. The key question isn't whether AI will transform business. It already is. The real question is how the debt and financing structures built around it will hold up under stress.
CFOs and risk officers should watch how the Fed's monitoring evolves and consider how their own organizations' AI commitments would fare in a downturn. For finance leaders who need to build this capability, an AI Learning Path for CFOs is available.
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