The Fed's hawkish stance resurfaces: the risk of asset price collapse becomes a stumbling block to interest rate cuts.

Wu Yu, Jinshi Data

Concerns about financial market stability, including the risk of a sharp decline in asset prices, are becoming a new topic of discussion among Federal Reserve officials when discussing the timing or even whether to cut interest rates.

In a speech at Georgetown University on Thursday, Federal Reserve Governor Lisa Cook did not specifically comment on recent interest rate policy.

However, she listed a series of risks to the financial system, including the rapidly growing private credit market, hedge fund trading in the Treasury market, and the application of generative artificial intelligence in machine trading.

Cook also hinted that she would not be surprised by a collapse in asset prices at historically high levels—these overvalued assets have supported overall consumer spending and the broader U.S. economy—although such a decline itself does not necessarily indicate financial market instability.