Investment banking giant reportedly JPMorgan has introduced an artificial intelligence (AI) tool to analyze the Federal Reserve’s statements and speeches in order to spot potential trading signals.
On April 27, Bloomberg reported that The Wall Street investment bank is using a ChatGPT-based linguistic model to digest comments from US central bankers.
These Federal Reserve policy signals will be rated on a scale from easy to tight to derive what the bank has called a Hawk-Dove score.
“Hawkish” is a monetary policy term that refers to raising interest rates to keep inflation in check. The opposite is “Dovish”, which favors easy monetary policy and lower rates.
The artificial intelligence tool will allow analysts to spot changes in monetary policy that could alert the bank to trading signals. “Preliminary applications are encouraging,” said Joseph Lupton, an economist at JPMorgan.
The tool can be used to predict changes in the restrictive policy of central banks. For example, restrictive monetary policy statements could translate into an increase in one-year government bond yields.
According to JPMorgan’s model, which can analyze statements from 25 years ago, Federal Reserve sentiment has fluctuated recently, but remains predominantly hawkish.
The Federal Reserve is expected to raise its benchmark interest rate another 25 basis points, to 5.25%, next weekaccording to Bloomberg.
A 10-point increase in the Hawk-Dove score indicates a 10 percent chance of a rate hike at the next policy meeting, and vice versa.
JPMorgan is very interested in AI applications for its benefit, but not so much in letting their employees use them.
In February, the company restricted its staff from using ChatGPT, according to reports. The decision to block employee access to the AI chatbot was not due to any particular incident, and other companies have taken similar steps.
In an annual letter to shareholders earlier this month, JPMorgan CEO Jamie Dimon revealed that the bank has more than 300 AI use cases in production.
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