Geopolitical Risks and Policy Uncertainty Threaten Financial Stability, Fed Survey Shows
The latest semi-annual survey by the U.S. Federal Reserve revealed that policy uncertainty, including global trade and central bank independence, along with geopolitical risks, are the top concerns for financial stability. The report highlighted a shift in priorities compared to the previous April survey, where trade risks had dominated, while concerns about developments in artificial intelligence (AI) have increased.
The survey found that approximately 61% of respondents consider policy uncertainty—including central bank independence and the availability of economic data—as a key risk to financial stability. For the first time, the report mentioned central bank independence in light of recent actions by the U.S. President affecting Federal Reserve governors and pressuring interest rate decisions. It also noted, for the first time, the absence of official economic data due to the extended federal government shutdown, which has affected the ability of economic actors to make informed decisions.
Meanwhile, artificial intelligence emerged as a potential risk over the next 12 to 18 months, cited by 30% of participants. Concerns focus on how investor sentiment toward AI has driven recent market gains and how shifts in that sentiment could lead to significant market losses and broader economic implications.
Other frequently cited risks include persistent inflation, higher long-term interest rates, and fiscal debt sustainability. The report also noted a partial recovery from spring market volatility linked to tariff announcements, with asset valuations remaining high and Treasury market liquidity stabilizing since then.
Regarding the commercial real estate market, prices have shown relative stability after a period of concern following the COVID-19 pandemic, though upcoming debt maturities could trigger volatility if forced sales occur. The report also highlighted rising student loan delinquencies after the U.S. government resumed repayment programs in the first half of 2025, while consumer loan delinquencies remained high by historical standards.
Although banks and broker-dealers remain well-capitalized, the report warned of notable leverage in other sectors, particularly hedge funds, which have reached their highest levels since comprehensive data collection began in 2013, potentially increasing market risks if not carefully monitored.
