Powell Drives AI to Reshape the Fed, but Short-Term Still Relies on Traditional Rate Tools to Fight Inflation

August 10th. Federal Reserve Chair Kevin Wash is pushing for the use of artificial intelligence (AI) to reshape the central bank's economic analysis and policy-making system. However, in the face of persistent inflationary pressures, the Fed will still need to rely on traditional interest rate tools in the short term to stabilize prices.

Reportedly, Wash aims to reduce the Fed's reliance on lagging economic data and traditional surveys through AI. He plans to use real-time data provided by retailers, banks, and other institutions to more quickly capture economic growth and inflation changes. He previously built AI models named "Milton" and "Tobin" to analyze modern economic issues.

Since taking office, Wash has been promoting the expanded use of AI within the Fed. Currently, dozens of employees have explored the role of AI in data analysis and economic forecasting through test environments. At the same time, he is considering adjusting the Fed's operational mechanisms, including reducing the frequency of annual monetary policy meetings to improve decision-making efficiency.

However, there are mixed views in the market on Wash's reforms. After his press conference on July 29th, the U.S. stock and bond markets experienced volatility, with some investors questioning his stance on curbing inflation. Analysts believe that although AI may enhance the Fed's long-term decision-making capabilities, the central bank's policy framework will not fundamentally change in the short term due to technological transformation.

The market expects that under Wash's leadership, the Fed will continue to advance AI and institutional reforms. However, until inflation returns to the 2% target, interest rate policy will remain the primary tool of regulation.