Federal Reserve Vice Chair for Supervision Michelle W. Bowman warned Thursday that US progress on lowering inflation has stalled, citing energy disruptions and concentrated artificial intelligence financing as fresh economic risks. Her remarks were published by the Bank for International Settlements. Bowman stressed that bringing inflation down remains the central bank's top priority despite a resilient labor market. She noted that 12-month core Personal Consumption Expenditures inflation likely climbed to 3.3 percent in October. The unemployment rate edged down to 4.1 percent in October, near her estimate of its natural rate, even as job creation moderated across several interest-sensitive sectors. She explained that holding the federal funds rate steady at 3.75 to 4 percent in October allowed officials time to assess September's quarter-point hike and tighter financial conditions.
Bowman emphasized that Middle East hostilities have severely impaired oil and commodity shipments through the Strait of Hormuz. This maritime corridor previously carried roughly 20 percent of global oil supply—matching total US oil consumption. Bowman also flagged in a footnote that first-half US GDP growth may be overstated by roughly 0.3 percentage points because annual national account revisions had not yet incorporated downward retail sales adjustments.
Bowman warned that financial exposure to the AI buildout is concentrated among a handful of frontier AI labs and hyperscalers funded through complex private credit, life insurance, pension, and mutual fund structures. Opacity across these lending chains makes counterparty exposures difficult for regulators to measure. She cautioned that sharp equity selloffs, wider corporate bond spreads, and higher credit default swap pricing could tighten credit availability broadly if AI revenues fall short of rising construction costs. Bowman concluded that banking supervisors must look beyond headline capital ratios to evaluate indirect exposures embedded inside private credit funds and structured data-center leases.
