The U.S. Federal Reserve, under the leadership of Kevin Warsh, has clearly announced its intention to reduce forward-looking policy signals. As a result, many financial institutions have begun developing AI tools like "WarshGPT" to analyze the Fed chairman's ideas and stance, replacing traditional interpretations.
July 19, 2569 - Since taking office in May. Kevin Warsh, the new chair of the Federal Reserve (Fed), has begun to shift his communication approach, reducing forward-looking signals about the direction of monetary policy. This has caused concern among many investors and fund managers who rely on interpreting statements from Fed officials to predict interest rate movements.
CNBC news agency reports that Wall Street investment firms are rapidly adopting AI to analyze the direction and decisions of the Federal Reserve. After observing that the amount of data the Fed will release to the public will be less than before.
Alexander Morris, Chief Executive Officer of F/m Investments. Said to CNBC: "In the past, we built our business by deciphering the Fed's language (Fedspeak), and now they're saying they'll be quieter. So, to embrace this new era of Fed communication, F/m Investments is launching an artificial intelligence tool called WarshGPT."
(The term "Fedspeak" refers to the communication style of central bank officials, which often uses cautious, complex, and open-ended language.)
WarshGPT will be an AI that analyzes over 1,800 documents, interviews, and speeches by Kevin Warsh to help investors understand his views on the economy, inflation, and monetary policy. F/m Investments is not the only financial institution preparing for an era of reduced public disclosure by the Fed; many companies are beginning to use AI to gain a competitive advantage in investments.
F/m Investments revealed that WarshGPT was developed using Anthropic's Claude model.
This tool cost less than $1,000 to build and took only about two weeks to develop from start to finish, after being tested by former Fed officials and economic writers.
In addition to Warsh data, the AI also references economic and political historical data to provide a more complete and contextual answer. However, F/m Investments has clearly defined limitations for WarshGPT.
- I will not be playing the role of Kevin Warsh.
- We will not predict future policies.
- I will not make any predictions about the Fed's decision.
Gary Richardson, a former Federal Reserve historian and current professor of economics at the University of California, Irvine. He said, "Regardless of how much information the Fed provides, investors still need to understand what the Fed is likely to do in the future. And when information is limited, people will try every possible way to figure out what the Fed is thinking."
Many investors are beginning to compare Watch's approach to that of Alan Greenspan, the former Fed chairman known for his vague communication.
Richardson recounts that in that era, there was a joke that Greenspan's mere utterance of "Good evening" could cause the stock market to crash. Financial media at the time even tracked what was called the "Briefcase Indicator," the idea being that if Greenspan's briefcase appeared thicker, it meant he was gathering a large amount of data in preparation for a change in interest rates.
CNBC further reported that since taking office, Watch has made it clear he will change the Fed's communication approach, and one of the working groups he established is tasked with studying ways to improve the central bank's communication style.
While the Federal Reserve's June monetary policy meeting, the first under Warsh's leadership, featured a statement of only about 130 words, down from over 300 words in previous meetings, according to CNBC's analysis. Warsh himself acknowledged that the new statement was shorter and simpler, stating that he intentionally removed any preamble on monetary policy.
UBS analyzed that in the first press conference after the meeting, Watch used only 5% of the total sentence to address issues related to monetary policy, while during Jerome Powell's era, the average was 27%.
Elena Amoruso, a strategist at UBS. Speaking to CNBC, the bank said that following Watch's first meeting, it assessed that his policy views were likely to support a tighter monetary policy, focusing on the labor market, economic growth, and inflation. UBS has developed an interactive dashboard for clients to analyze the Fed's tone at each meeting.
"This may be the most valuable dataset because a single word can move vast sums of money."
side David Kelly, Global Head of Investment Strategy at JPMorgan Asset Management. He said that if the Fed stops releasing key data such as the Dot Plot, a diagram showing the views of Fed officials on the direction of interest rates, his team will turn to closely monitoring speeches by members of the Federal Open Market Committee (FOMC) to assess how they will vote at the next meeting. However, he believes that the change in the Fed's communication style will happen gradually, not immediately.
CNBC further reported that while investors are concerned about high volatility, some see it as an opportunity. Many investors expect that if the Fed reduces its forward-looking signals, financial markets will become more volatile at each policy meeting or when Fed officials make public statements.
While some investors view this situation as potentially creating opportunities for higher returns.
Steve Friedman, a former Federal Reserve Bank official in New York and currently a senior macroeconomic economist at MacKay Shields. said "If the Fed communicates less about the criteria for its decisions, that's not good for the economy. Uncertainty about what the Fed might do can become a source of incremental returns for investors, provided there's a strong framework for analyzing the economy and monetary policy."
Friedman also said that if Watch reduces its media appearances, he will turn to listening to comments from Fed board member Christopher Waller, whom he sees as a key indicator of the committee's overall direction. This week, Waller stated that the Fed should not be "fighting the same war before," meaning it shouldn't be too fixated on past inflation, although he hasn't ruled out the possibility of further interest rate hikes.
Richardson believes that retail investors may need to diversify their investments more to cope with the increased monetary policy uncertainty under Watcht's leadership. Meanwhile, large financial institutions are likely to increase their budgets to recruit former Fed officials to help interpret central bank thinking in an era of declining public disclosure.
"For the average investor, it's already difficult to understand what's happening these days, but it will become even more difficult in the future."
Currently, the market itself is beginning to have differing views on the direction of the Fed's policy. Data from the CME's FedWatch Tool indicates that investors in the futures market give nearly 59% weight to a Fed interest rate hike at the September meeting. Conversely, traders on the Kalshi platform see the highest probability that the Fed will keep interest rates unchanged.
refer : cnbc.com
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