AI Tool Created by JPMorgan Analyzes Fed Speeches to Signal Trades

According to reports, the world’s largest investment bank JPMorgan has unveiled an artificial intelligence (AI) tool to examine Federal Reserve speeches and statements to find potential trading signals.

According to a report by Bloomberg on April 27, the Wall Street investment bank is analyzing central bankers’ remarks using a language model based on ChatGPT. To determine what the bank refers to as a Hawk-Dove Score, these Fed policy signals will be ranked on a scale from easy to restrictive.

In terms of monetary policy, “hawkish” refers to increasing interest rates in order to keep inflation in check. The “Dovish” alternative, which supports a monetary policy of expansion and lower rates, is the opposite.

Analysts will be able to identify policy changes using the AI tool, which could give the bank a heads-up on trading signals. According to reports, JPMorgan economist Joseph Lupton said that “preliminary applications are encouraging.”

It is possible to forecast changes in central bank tightening using this tool. For instance, hawkish policy pronouncements could cause the yield on one-year government bonds to increase.

The JPMorgan model, which can examine statements dating back 25 years, predicts that while Fed sentiment has recently fluctuated, it is still primarily hawkish. According to Bloomberg, the Federal Reserve is anticipated to increase its benchmark interest rate by an additional 25 basis points to 5.25% the following week.

A 10-point increase in the Hawk-Dove Score predicts a 10% chance of a rate hike at the following policy meeting, and the opposite is also true. JPMorgan is interested in AI applications for its own use, but it is less interested in allowing its staff to use them.

According to reports, the company forbade ChatGPT use by its employees in February. The decision to restrict employee access to the AI chatbot was not motivated by any specific incident, and other businesses have taken similar actions.

The bank has over 300 AI use cases in production, according to Jamie Dimon, CEO of JPMorgan Chase, in a letter to shareholders earlier this month.