by Patrick Fearon-Hernandez, CFA, and Thomas Wash

[Posted: 9:30 AM ET] | PDF

Our Comment opens with an analysis of growing concerns that AI tools may be becoming too dangerous. We then examine Hungary’s upcoming elections and their implications for the EU, provide an update on developments in Iran, discuss why OpenAI has delayed expansion plans in the UK, and review a new lawsuit over US tariffs. As always, we conclude with a summary of recent domestic and international economic data.

AI Fears: Treasury Secretary Scott Bessent and Fed Chair Jerome Powell recently met with several Wall Street CEOs to discuss emerging risks from AI. The conversation focused on the cybersecurity threats posed by Anthropic’s latest Mythos models and similar systems. These advanced tools, which can be weaponized to identify and exploit vulnerabilities in servers and web browsers, raise the possibility of AI-driven hacking. Such capabilities reinforce growing concerns that AI could evolve into a source of systemic financial risk.

• The efforts by the White House and the Federal Reserve to assess Wall Street’s vulnerabilities come as the financial system braces for a potential new era of hacking, one marked by increased sophistication and accuracy. According to Anthropic, the company has developed AI tools with offensive capabilities comparable to those of sophisticated state-level actors, which is why it considers the system one of its riskiest products.
• Although the tool has not yet been released publicly, a select group of major technology firms have accessed a sample version. These companies will be able to use the preview version to scan their platforms for bugs and uncover blind spots in their security frameworks. The decision to restrict access reflects the company’s concerns over AI safety and security, which are issues that lie at the heart of its dispute with the Pentagon and that trace back to why its founders, formerly from OpenAI, launched the company in the first place.
• The development of Anthropic’s Mythos has started to expose a troubling reality. The uses of the technology are evolving faster than our ability to understand its implications. This discovery is likely to add further pressure on the US government to establish potential guardrails to help shield the public from the tool’s capabilities. It also highlights the risk and danger that these AI tools could, and likely will, fall into the hands of bad actors.
• The rapid rise of AI is expected to trigger major disruption while simultaneously creating new vulnerabilities in the financial system. If a bad actor were to use, or develop, their own AI tools to hack into the banking system, it could undermine confidence in global finance and potentially spark a bank run. While this is not our base case, we believe that the development of AI‑enabled hacking tools represents a clear and present danger for markets if it is not taken seriously.

 A New Hungary: Hungarian President Viktor Orbán faces his toughest political challenge yet in this weekend’s presidential election. Recent polls place his party behind the opposition, 52% to 39% among decided voters, in what many see as a referendum on Hungary’s future within the European Union. The vote follows mounting criticism of Orbán’s restrictions on free speech, his alignment with Moscow during the war in Ukraine, and speculation that Budapest may seek to further distance itself from Brussels.

• While polls currently favor the opposition, victory is far from assured, as a significant share of voters, nearly one-fifth of those surveyed, remain undecided. Orbán continues to command strong loyalty among his base, and recent redistricting may improve his chances of outperforming expectations. The range of possible outcomes remains wide, with some analysts suggesting the opposition could secure a supermajority while others believe Orbán’s party may still retain its governing majority.
• The election has drawn attention from the White House, which remains closely aligned with Viktor Orbán. Earlier this week, US Vice President JD Vance traveled to Hungary to express support for Orbán and criticize the European Union, accusing it of exerting undue influence over the election. Vance’s visit underscores Washington’s effort to strengthen one of its closest regional partnerships amid mounting geopolitical tensions.
• Moreover, an Orbán defeat could strip Moscow of a key ally within the EU as Brussels seeks to intensify pressure over Russia’s war in Ukraine. Since the conflict began, Orbán has repeatedly obstructed EU and NATO initiatives to deliver financial and military assistance to Kyiv. His removal would likely open the door for a more assertive European stance toward Russian aggression and strengthen regional coordination on security and sanctions policy.
• The Hungarian election is unlikely to have a significant market impact — except perhaps a modest effect on the euro. However, its political implications could prove consequential for Europe. Orbán’s potential removal would likely ease coordination within the bloc on defense policy and military spending. We believe the EU is gradually pursuing greater security independence from the United States, a shift that could benefit European defense and aerospace firms positioned to meet rising regional demand.

 Iran Update: The US and Iran are set to meet in Islamabad to discuss a potential ceasefire agreement. Despite earlier US warnings over Tehran’s efforts to assert control of the Strait of Hormuz, diplomacy now appears to be gaining traction. Israel has agreed to enter direct talks with Lebanon, while Iran remains open to negotiations, though it continues to demand an end to Israeli strikes on Lebanese territory. With the strait still largely closed and the truce largely intact, the upcoming discussions may offer valuable insight into the prospects for a lasting peace.

 UK Stargate: Rising energy costs and red tape have led OpenAI to halt the construction of data centers within the UK. The move comes as the company looks to rein in costs ahead of its planned initial public offering. Its decision to pause construction has been influenced by energy prices related to ongoing conflicts, which have made costs less palatable. Additionally, the company has pushed for regulatory changes to make building more favorable. However, OpenAI does plan to resume construction at a later date.

 New Tariff Fight: A coalition of state governments and small businesses has filed suit against the White House over its new 10% tariffs. The plaintiffs argue that the tariffs, implemented after the recent Supreme Court ruling, effectively undermine that decision. Although the new measures were enacted under a different legal provision, critics contend that the administration’s justification, addressing large and persistent trade deficit, lacks a valid legal basis.

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