Federal Reserve officials are beginning to examine whether the frenzied investment in the artificial intelligence sector is getting out of hand and creating risks for the financial sector. While some officials, such as Federal Reserve Bank of New York President John Williams, do not see this as a bubble, others are more concerned about the potential risks.

Monitoring AI Investment

Williams stated that the high level of excitement and enthusiasm around new technology, particularly AI, is driving investment. However, he noted that investors are trying to solve an almost intractable problem – determining the benefits of AI – which will lead to volatility. Despite the increase in borrowing to support AI investment, Williams believes that it is being managed by companies with high earnings, and he is not currently worried about financial stability.

Torsten Slok, chief economist at Apollo, compared the data-center buildout to the housing boom, stating that it is still less than half the size. However, the investment pace relative to GDP has been growing faster than housing did in the run-up to the global financial crisis. Other Fed officials, such as Kansas City Fed President Jeff Schmid, are more concerned about the flow of financing and the potential for a problem to start at one stage and propagate. San Francisco Fed chief Mary Daly also expressed anxiety about the growth rate and amount of investment in the AI space.

Original reporting: Appleton, WI News Feed (HLL/CB) — read the source article.