A week before the Federal Reserve meeting, JPMorgan Chase & Co. presented an artificial intelligence model based on ChatGPT, the purpose of which is to decipher an in-depth analysis of central bank messages and identify potential signals for the trading sector.
This language model is based on an array of data that includes statements by the Fed and central bank governors over 25 years. JPMorgan economists used this model to determine the degree of significance of political utterances based on an assessment scale that characterizes statements in terms of the importance of content in the range from light to restrictive. This scale is also called the Hawk-Dove score.
Economists, after comparing the results of the analysis of various statements of the past years and subsequent processes, found that the artificial intelligence model can make a forecast of potential political changes and transformation of the state of affairs in the trade sphere. For example, it was recorded that in the case when AI signals the growth of radical sentiments in the speeches of the Fed speakers, the following statements have a tougher content, and after that, the yield of one-year government bonds begins to rise.
The artificial intelligence-based tool is an advance in Wall Street’s efforts to find trading advantages and one of the examples of the introduction of OpenAI technology.
Earlier in April, research papers were published that contain conclusions that ChatGPT can increase value in tasks that are relevant to the market, such as, for example, deciphering the degree of radicality of the Fed’s statements.
Experts expect that next week the Fed will decide to raise the base interest rate by another 25 basis points to 5.25%. Investors focused on the actions of the regulator after beginning to tighten the policy to combat inflation, which caused rare coordinated sales of stocks and bonds last year. Since then, the value of assets has recovered.
According to JPMorgan’s model, a 10-point increase in the Fed’s Hawkish Dove rating now means a 10 percentage point increase in the probability of a 25 basis point rate hike at the next central bank policy meeting or a change of the same magnitude in the opposite direction.
As we have reported earlier, JPMorgan Chase Boss Dimon Hails Groundbreaking AI.