Artificial Intelligence at the Core of Central Bank Discussions During IMF Meetings

SadaNews - Policymakers, already concerned about rising trade tensions and public debt inflation, are preparing to face a new worry next week: the risk of a financial market collapse.

Monetary policy makers and finance ministers from around the world will gather in Washington for the fall meetings of the IMF and World Bank, following a series of warnings about the possibility of a burst of the stock market bubble linked to artificial intelligence companies in the near future.

Risks Threatening Global Financial Stability

Kristalina Georgieva, the managing director of the International Monetary Fund, acknowledged in a speech delivered on Wednesday the risks posed to financial stability while reviewing the topics up for discussion in the coming days.

What is the AI Bubble? The Concept and Key Indicators of Market Inflation

Georgieva stated: "Valuations are trending towards levels we saw during the internet optimism wave 25 years ago," adding: "If a sharp correction occurs, tighter financial conditions could lead to a slowdown in global growth, reveal vulnerabilities, and make conditions more difficult for developing countries."

Georgieva's warning was clearer than the IMF's comments during the October 2000 meetings, when the "World Economic Outlook" report described the valuations at the time as "still high" and warned of the possibility of correcting imbalances "in an unorganized way." Just a few months later, the selling momentum reached a level that forced the Federal Reserve to cut interest rates emergency by half a percentage point.

Concerns About the AI Bubble

Even before stocks fell on Friday following U.S. President Donald Trump's threats to impose new tariffs on China, officials noted troubling similarities. The Bank of England recently warned of the risk of a "sharp correction in markets," while policymakers at the European Central Bank expressed similar concerns, and the Reserve Bank of Australia also pointed to vulnerabilities this month.

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These concerns have been mounting for some time. ECB officials received a warning in their most recent meeting over a month ago about "sudden and sharp corrections," while Federal Reserve Chair Jerome Powell indicated in September that markets' "valuations are excessively high."

Global Economic Outlook

Next week, the "Global Financial Stability Report" issued by the International Monetary Fund— a report that did not exist in 2000—is expected to gain more attention than usual when released on Tuesday, alongside the "World Economic Outlook" report which contains global economic forecasts.

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The statements and data from the G7 and G20 Ministers participating in the fund meetings will also be closely monitored, as will the conflicting statements anticipated from policymakers.

Expert Opinion from Bloomberg Economics:

"AI may be a bubble, but it's also an unstoppable force. While the IMF is correct to caution against inflated valuations, the question is: Will these warnings find a receptive audience among investors gripped by the fear of missing out?"

- Tom Orlik, Chief Economist of Bloomberg Economics for the Global Economy.