Central banks around the world gathered in Washington to warn of the ironic feast of stock market bubbles

The autumn Annual meetings of the International Monetary Fund and the World Bank recently concluded in Washington. At this gathering of global financial elites, central bank governors from various countries, unusually, unanimously issued warnings about the overvaluation of stock markets and the potential risk of a crash. IMF Managing Director Kristalina Georgieva was outspoken in pointing out that current asset valuations have approached the levels seen during the dot-com bubble 25 years ago. She warned that "a significant market correction would drag down the global economy." This scene is rather ironic: it is precisely the loose policies of these central banks themselves over the years that have given rise to this liquidity feast, but now they have to worry about its possible consequences.

This concern is not groundless. In fact, major financial institutions such as the Federal Reserve, the European Central Bank and the Bank of England have long expressed unease about the overvaluation of the market and the risk of a correction. The Bank of England had previously warned of the risk of a "sharp market correction", policymakers at the European Central Bank have also publicly expressed similar concerns, and the Reserve Bank of Australia has also pointed out the fragility of the market. What is even more intriguing is that in September, Federal Reserve Chair Powell had already admitted that the market was "overvalued", and this concern reached its peak at the Washington meeting.

Where does this bubble that worries central banks around the world come from? The answer might lie hidden in the central bank's own policies. In a research report, Goldman Sachs revealed the truth: The rise in global stock markets is mainly driven by liquidity-driven valuation increases, which are clearly disconnected from the real economy. In other words, against the backdrop of a persistently loose monetary policy, a large amount of funds with nowhere to go have flooded into the stock market, significantly pushing up global stock prices. In this liquidity feast, the artificial intelligence sector has become the concentration of bubbles. Since 2025, global AI startups have received a record amount of venture capital. Us venture capital accounted for 62.7%, and 53.2% of global funds have flowed into the AI industry. Although the CEO of Goldman Sachs once warned that a large amount of AI capital might not yield returns, this did not prevent a continuous influx of funds.

The risk impact of this bubble bursting will far exceed that of the financial sector. Georgieva has clearly warned that "once there is a sharp price correction, tightened financial conditions may drag down global economic growth, expose the weaknesses of the system, and put developing countries in an especially difficult situation." What is even more worrying is that this risk is emerging against the backdrop of already high global public debt. Data shows that by 2029, global public debt will exceed 100% of GDP, which will severely limit the ability of governments around the world to deal with crises. History does not repeat itself, but it often rhymes. The IMF's warning this time is more straightforward than that during the dot-com bubble in 2000. Back then, the IMF merely noted in the World Economic Outlook that stock valuations were "still high", and within a few months, market sell-offs forced the Federal Reserve to cut interest rates urgently.

Facing a possible crisis, global central banks are caught in a contradictory dilemma. On the one hand, they need to maintain financial stability and prevent the bubble from expanding further; On the other hand, they have to worry about the possible chain reaction that might be triggered by bursting the bubble too early. This predicament is evident in a series of meeting arrangements for the annual meetings of the IMF and the World Bank, which included the release of the Global Financial Stability Report and discussions on "Strengthening the resilience of the Financial System in an uncertain era". Ironically, the warnings issued by central bank officials about market bubbles stand in sharp contrast to the consequences of their previous loose policies.

For investors, in this market environment full of uncertainties, it is particularly important to remain calm, optimize asset allocation, diversify risks and control positions. Avoiding full position operation and using leverage with caution are effective strategies to deal with significant market fluctuations. In this ironic cycle where the central bank creates bubbles and then issues warnings about them, investors need to keep a clear head, neither being overly pessimistic nor blindly optimistic.

Traders on Wall Street remain glued to their screens, with wealth shifting as the numbers fluctuate. Meanwhile, the central bank governors in Washington were repeatedly deliberating various crisis response plans in the meeting room. This warning about the stock market bubble is both a prediction of potential risks and a reflection on past policies. Perhaps, as Georgieva put it, "Uncertainty has become the new normal." Under this new normal, the only certainty is that central banks are deeply worried about the monsters they have created, which undoubtedly constitutes the most ironic scene in contemporary financial history.