Federal Reserve Highlights Risks to Financial Stability in New Report

In November 2025, the Federal Reserve released its biannual Financial Stability Report, highlighting significant risks to the U.S. financial system. The report identifies policy uncertainty and geopolitical risks as primary concerns, with 61% of surveyed market participants citing policy uncertainty—including issues related to trade policies, central bank independence, and the availability of economic data—as significant threats. This marks the first time central bank independence has been mentioned in the survey, following President Donald Trump's dismissal of Fed Governor Lisa Cook and his ongoing criticism of Fed Chair Jerome Powell for not lowering interest rates as desired.

Additionally, 30% of respondents highlighted artificial intelligence as a potential economic shock within the next 12 to 18 months, primarily due to its influence on stock market sentiment. Other concerns include persistent inflation, rising long-term interest rates, and fiscal debt levels. The report also notes signs of stabilization in the commercial real estate market, though a large volume of debt maturing next year could trigger volatility. Consumer and student loan delinquencies remain elevated, while leverage in hedge funds and life insurers has reached historical highs. The Fed remains cautious about the private credit market, though recent bankruptcies appear to be isolated.

The mention of central bank independence in the survey is particularly noteworthy. In August 2025, President Donald Trump announced the immediate dismissal of Federal Reserve Governor Lisa Cook, citing allegations of mortgage fraud. Cook denied the allegations and asserted that the president lacked the legal authority to fire her without due process. This unprecedented move raised concerns about the Federal Reserve's independence, a cornerstone of its ability to conduct monetary policy free from political influence.

Legal challenges ensued, with a federal judge temporarily blocking President Trump from removing Cook, marking an early legal setback for the White House in a case that could have significant implications for the independence of the U.S. central bank. The case represents the first legal test of a president's authority to remove a Fed governor, a role traditionally protected from political influence to maintain unbiased monetary policy. Cook argues the allegations are a pretext for firing her due to her policy positions. Her legal team hailed the decision as a defense of Federal Reserve independence. Meanwhile, the Justice Department has reportedly launched a criminal probe into the mortgage claims. The Trump administration maintains the president acted lawfully and asserts that courts cannot overrule his discretion in such removals.

The inclusion of central bank independence as a risk factor reflects growing concerns about political interference in monetary policy. Such interference can undermine investor confidence, lead to market volatility, and potentially destabilize the economy. The legal battles surrounding Governor Cook's dismissal underscore the delicate balance between executive authority and institutional independence.

The report's identification of artificial intelligence as a potential economic shock highlights the evolving nature of financial risks. As AI technologies become more integrated into financial markets, they can influence trading behaviors, risk assessments, and market dynamics, necessitating new regulatory considerations.

The Federal Reserve's latest report serves as a critical alert to policymakers and investors about the pressing risks posed by policy uncertainty and technological advancements. Ensuring the central bank's independence and proactively addressing AI's role in financial markets are imperative steps toward maintaining economic stability.