The provided text discusses the Federal Reserve‘s (Fed) exploration of Artificial Intelligence (AI), notably Large Language Models (LLMs), and its potential implications for monetary policy.
Here’s a breakdown of the key points:
Fed’s Use of AI: The Fed is not using AI to develop or set policy. Rather, they are using it to assist staff with tasks like writng, coding, and research.
Understanding AI’s Capabilities: The Fed is deepening its understanding of LLMs and other machine learning models to generate economic insights.
Fed Research on AI:
One Fed paper found LLMs have a good understanding of economic topics discussed in Fed minutes.
Another paper explored using machine learning to forecast financial crises.
Fed economists observed that adoption of generative AI for non-work uses is faster than personal computers were, while workplace adoption is similar to PCs.
AI’s Implications for the Fed: AI has significant implications for Fed leaders, both as policymakers and managers.
AI’s Economic Impact:
AI can create and eliminate jobs, similar to past technological innovations.
AI can improve productivity, potentially lowering inflation. Though, AI adoption could also lead to a surge in aggregate investment, potentially boosting prices in the interim.
Studying the net effects of AI on the economy over time will be crucial for setting monetary policy.
* AI’s Recommendation on Monetary Policy: When asked whether the Fed should cut interest rates, Google’s Gemini chatbot provided a cautious response, stating it depends on economic factors like inflation, a weakening economy, and the labor market, and that potential rate cuts are expected later in 2025. The article notes this response is similar to what any economist would say.
In essence, the article highlights the Fed’s cautious but active engagement with AI, recognizing its potential to both influence the economy and aid in economic analysis, while emphasizing that AI is not currently dictating policy decisions.
