Lisa Cook, a member of the Federal Reserve Board of Governors, warned that historically high price levels across stocks, corporate bonds, housing, and leveraged loan markets could open the door to sharp corrections in valuations in the near future.
Cook said during an event at Georgetown University:
"There is an increasing likelihood of significant declines in asset prices."
However, she confirmed that the U.S. financial system has sufficient resilience to withstand such downturns without slipping into a crisis similar to the Great Depression.
Kook noted that private credit growth does not currently pose an immediate threat, but it requires continuous monitoring, while she expressed greater concern over liquidity risks arising from the expansion of hedge funds within the treasury bond markets.
As she addressed the growing role of generative artificial intelligence in trading, she emphasized that it could help enhance stability by reducing human biases, but at the same time brings new risks that require close monitoring.
She said: "There is early evidence of both benefits and risks, with areas that require continuous follow-up."
Kook did not address any details related to monetary policy or future economic forecasts.
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