Federal Reserve Governor Michelle Bowman has warned that stock markets could face a sharp correction if returns on artificial intelligence investment fall short of the high expectations built into share prices.

Speaking at the Council on Foreign Relations in Washington on 10 November, Bowman listed a large correction in equity valuations among the main risks to the US economy. She said lower share prices could weaken consumer spending and tighten credit, slowing the AI buildout and softening economic activity.

$800bn of AI-related debt

Bowman said AI-related debt, spanning corporate bonds, private credit and project finance, is on track to exceed $800 billion this year. She warned that other obligations, including long-term leases, contract commitments and residual-value guarantees, carry payments of more than three times that amount.

She also flagged circular financing in the sector, where technology suppliers invest in the companies buying their products, saying it can make counterparty risk harder to assess. AI revenues are rising quickly, she said, but they do not yet cover the cost of maintaining existing models and building new data centres.

Inflation still above target

Bowman said about 25 percent of businesses and roughly 10 percent of workers now use AI daily, and that business investment growth has reached a pace similar to the 1990s technology boom. High-tech equipment, software and data centres account for most of the increase in business investment since 2025.

On inflation, she said October consumer price data suggested core personal consumption expenditure inflation likely rose to 3.3 percent. She supported holding the federal funds rate at 3.75 to 4 percent at the October meeting and said policy is not on a preset course. Her remarks were her own, not those of the Federal Open Market Committee. Her warning is a conditional risk, not a prediction of a crash.