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Key insight:The Federal Reserve’s semiannual Financial Stability Report again identified elevated asset valuations as a leading risk to financial stability.
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Expert quote:“The complex interlinkages among firms engaged in the data center buildout, public credit markets, private lenders, and special purpose financing vehicles create vulnerabilities that necessitate close monitoring.” — Federal Reserve financial stability report
WASHINGTON — The Federal Reserve warned Friday that elevated asset prices remain a key risk to financial stability.
In its latest financial stability report, which includes data through Oct. 28, the central bank said asset valuations remain near the upper end of their historical ranges across most markets, driven notably by investor optimism surrounding artificial intelligence.
That optimism has been somewhat tempered by concerns about companies’ capital spending and plans to take on additional debt, according to the semiannual report.
“Broad equity valuation metrics continued to be elevated, partly driven by market enthusiasm for superintelligence, though moderated by concerns over firms’ capital expenditures and debt issuance plans,” the report said.
The Fed noted that the development and adoption of new computing technologies have been significant drivers of U.S. economic growth in 2026. But an unexpected downturn in corporate earnings could lead to lower asset valuations, tighter credit conditions and reduced capital spending.
“A weaker economy could, in turn, stress businesses with high leverage and the most vulnerable households, leading to increased credit losses for banks and other lenders,” the report said.
The report described vulnerabilities stemming from business and household debt as moderate but warned that corporate borrowing could increase, driven in part by technology companies’ growing debt issuance and increasingly complex financing arrangements.
Major companies involved in the data center buildout have rapidly increased their borrowing, while loan default rates in private credit markets have risen since May, reaching the upper end of their historical range, the report said.
“The complex interlinkages among firms engaged in the data center buildout, public credit markets, private lenders, and special purpose financing vehicles create vulnerabilities that necessitate close monitoring,” the report said.
Meanwhile, outstanding household debt and consumer delinquencies remained relatively low. Mortgage debt, which accounts for about three-fourths of total household debt, remained subdued, while delinquency rates on conventional mortgages remained near historic lows.
