Artificial Intelligence (AI) can potentially transform federal data streams, offering enhanced efficiency and insights. However, the phenomenon of AI hallucinations—where AI systems generate outputs not grounded in reality—poses significant risks. These hallucinations can introduce misinformation, compromise decision-making, create security vulnerabilities, and lead to legal and ethical issues. Understanding these dangers and implementing robust safeguards is essential to maintaining the integrity and reliability of federal data. This article explores the potential impacts of AI hallucinations and strategies to mitigate their risks.