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Investing.com -- Federal Reserve Governor Lisa Cook warned Thursday that historically high prices across equities, corporate bonds, housing, and leveraged loan markets could lead to significant valuation declines, though she believes the financial system would remain stable through such corrections.
"Currently, my impression is that there is an increased likelihood of outsized asset price declines," Cook said during an event at Georgetown University’s business school. Despite this concern, she added that the financial system’s overall resilience means such declines wouldn’t trigger a crisis similar to the Great Recession.
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Cook noted that while private credit growth doesn’t currently pose a threat to financial stability, it deserves continued monitoring. She expressed more immediate concern about market liquidity vulnerabilities stemming from hedge funds’ expanding presence in Treasury securities markets.
The Fed governor also addressed the emerging role of generative artificial intelligence in trading, suggesting it could potentially enhance market stability by eliminating human biases that sometimes cause panic selling. However, she acknowledged AI also introduces new risks that require careful observation.
"There is early evidence for both," Cook said regarding AI’s potential benefits and risks. "Areas to watch carefully have emerged, as well as potential ways we will benefit from this new technology."
Cook’s remarks did not directly address monetary policy or provide specific economic forecasts.