BoE Warns Of Twin Market Risks: Bursting Of AI Valuation Bubble, Loss Of Faith In Fed's Independence Could Trigger Sharp Correction

The Bank of England warns that a loss of confidence in the U.S. Federal Reserve's independence or a reversal in AI market optimism could lead to a global selloff. The BoE's Financial Policy Committee noted increased risks of a sharp market correction due to geopolitical tensions and stretched valuations in AI-focused tech companies. It emphasized the importance of Federal Reserve credibility in maintaining financial order, cautioning that any disruption could result in significant volatility and re-pricing of U.S. dollar assets. Recent political changes may also impact the Fed's decision-making structure.