Policy uncertainty, including on global trade and central bank independence, and overall geopolitical risk topped the list of financial stability concerns in a new Federal Reserve survey released.
The ‘The Belem Call for the Forests of the Congo Basin’ initiative, launched by France and Gabon and backed by Germany, Norway, Belgium, and Britain, aims to protect tropical forests.
Global trade risk was the top-cited concern in the April version of the survey, but by late October, when the latest survey concluded, it had disappeared as a singular worry. Some 61% of respondents now cited policy uncertainty overall, which included trade, central bank independence, and availability of economic data, as a top stability concern.
It was the first time central bank independence was mentioned among the risks in the survey and follows President Donald Trump’s move to fire Fed Governor Lisa Cook and his persistent heckling of Fed Chair Jerome Powell for not lowering interest rates at the speed and magnitude Trump wants.
The mention of the absence of economic data is also a first and comes amid a record-long federal government shutdown that has closed off the flow of official economic data.
Meanwhile, artificial intelligence emerged as a stability risk, cited as a potential shock in the next 12 to 18 months by 30% of the U.S. central bank’s market contacts. The Fed said that concern was primarily focused on how sentiment towards AI had driven recent stock gains, and how a shift in that perspective could lead to “large losses” in markets and potentially broader economic implications.
Persistent inflation, higher long-term interest rates, and fiscal debt sustainability were also among the most cited stability concerns in the near term, the Fed said.
COMMERCIAL REAL ESTATE MARKET SHOWS SIGNS OF STABILIZING
Overall, the latest survey indicated some recovery from volatility in the spring tied to Trump’s sweeping tariff announcements, with asset valuations remaining high and Treasury market liquidity stabilizing since then.
The Fed also noted that the commercial real estate market had shown signs of stabilizing, as the sector has long been a concern following the COVID-19 pandemic. While prices showed signs of stabilizing, the Fed noted a large volume of the commercial real estate debt is due to mature in the coming year, which could add to volatility if there were forced sales on borrowers.
The Fed also noted that consumer delinquencies remained high by historical standards, and there was a significant uptick in student loan delinquencies in the first half of 2025 when the government resumed student loan repayments.
Banks and broker-dealers remain well capitalized, but the Fed cautioned that leverage in other sectors was “notable,” with hedge fund leverage rising to the highest levels since comprehensive data on the sector was first collected in 2013.
The Fed said the largest hedge funds tend to be the most leveraged, and that leverage at life insurance companies was also historically high.
The central bank continued to air some caution about the private credit market, noting the opaque sector could lead to unexpected losses. However, it said it seemed that a pair of recent high-profile bankruptcies tied to that sector, from an auto parts supplier and subprime auto lender, so far appear to be “isolated events.”
(Reporting by Pete Schroeder, Ann Saphir and Howard Schneider)
