Federal Reserve and Michael Burry warn of potential market instability

Federal Reserve officials are monitoring potential overheating in the artificial intelligence sector, with concerns that rapid investments in data centers are mirroring dynamics seen before the 2008 financial crisis. San Francisco Fed President Mary Daly has raised questions regarding the sustainability of these investments, noting the risk of a “domino effect” involving capital expenditures, debt financing, and dependencies between data center operators and energy suppliers. Some officials, including Jeff Schmidt of the Kansas City Fed, have questioned if the sector is becoming “too big to fail.”

While some economists, such as New York Fed President John Williams, suggest the situation differs because investments are driven by high-margin technology giants, others warn of a massive $7 trillion global scale of investment.

In a related warning, investor Michael Burry has cautioned against the unusual calm in stock markets. Burry highlighted technical data showing a lack of significant trading volume drops on the New York Stock Exchange, a phenomenon not seen in this manner for decades. He warned that market cycles can be deceptive and advised investors to avoid leverage to survive potential volatility, stating that a major shift could last long enough for “almost everyone to go bankrupt.”