Federal Reserve Vice Chair Philip Jefferson stated on Friday that the current surge in artificial intelligence (AI)-related stocks is unlikely to repeat the late-1990s internet stock bubble that ended in a crash. He emphasized that today's AI firms are fundamentally stronger and demonstrate tangible profitability.
A recent Fed report revealed that approximately 30% of respondents believe a reversal in market optimism toward AI could pose significant risks to the U.S. financial system and global economy.
Jefferson noted that investor enthusiasm for AI companies has emerged against a backdrop of "a sound and resilient financial system." In prepared remarks for a Cleveland Fed conference, he highlighted another key difference from the speculative dot-com era: current AI firms are not heavily reliant on debt financing.
The Fed official suggested that limited leverage usage "may reduce the magnitude of impact should a shift in AI sentiment transmit through credit markets to the broader economy." However, he cautioned that if future AI infrastructure investments require more debt financing—as some analysts predict—"leverage in the AI sector could rise, potentially amplifying losses if market sentiment turns. I will monitor this dynamic closely."
Jefferson added that while AI may transform the world in dramatic and "uneven" ways, it remains too early to assess its specific effects on labor markets, inflation, and monetary policy.
