Navigating the Fog: BoE Warns of Uncertainty in AI and US Politics

The Bank of England has issued a warning about navigating a dense fog of uncertainty, with poor visibility surrounding the future of both artificial intelligence and US politics. The Financial Policy Committee (FPC) stated that this uncertainty has increased the risk of a “sharp market correction” for which investors are not prepared.
The fog around AI concerns its true economic value. While valuations for firms like OpenAI have soared to $500 billion, an MIT study shows 95% of companies are seeing no return. The FPC warns that this disparity between perception and reality has created a “stretched” market that could collapse suddenly.
The fog around US politics relates to the independence of the Federal Reserve. Donald Trump’s “continued commentary” has created significant uncertainty about the future of the central bank’s governance. The FPC cautioned that a loss of Fed credibility would trigger a “sharp repricing of US dollar assets.”
The Bank’s concern is that these two clouds of uncertainty are merging, creating an environment where a sudden shock is more likely and its consequences more severe. Investors, blinded by the fog, may not see the cliff edge until it’s too late.
For the UK, the message is to brace for impact. The FPC concluded that the “risk of spillovers… is material,” and a sudden shock from either source would have a direct and damaging effect on the British economy.