JPMorgan Chase uses a ChatGPT AI-like model to decipher trading signals

JPMorgan Chase's work is yet another tool being developed by Wall Street to gain an edge in trading by making use of available information to decipher the central bank's intent and detect potential signals about upcoming policy changes.

How does the Hawk Dove score AI model work?

The development of the AI model comes at a time when the U.S. Federal Reserve has been aggressively tightening its monetary policy to rein in inflation in the country. With fears of an incoming recession as a result of the policy, investors and traders are keen to know when Fed will begin dropping its interest again.

Economist researchers at JPMorgan Chase went back two and half decades to feed the ChatGPT-based language model statements and speeches from the U.S. central banker to determine if there was a tenor that could help predict upcoming monetary policy decisions.

The researchers found that when the AI tool showed a rise in hawkishness in Fed speakers between meetings, the next policy statement was indeed more hawkish. Hawkish is the term used to describe the outlook of central bankers when they intend to increase interest rates to fight inflation. On the other hand, a dovish outlook aims to reduce interest rates to promote growth.

According to the JPMorgan AI model, Fed statements in recent months have shown fluctuations, and hawkishness had relatively reduced. However, it was still close to the highest levels of hawkishness seen in the past two decades. This suggests that the Fed policy is unlikely to change, which can be confirmed when the US central bank announces interest rates next week.

The JPMorgan model has also analyzed the monetary policy outlook for the Bank of England and the European Central Bank. In the coming months, it is expected to expand to another 30 central banks around the world.