When Will Watson Run The Fed?

As the American economy continues to recover and expand following the biggest financial crisis since the Great Depression, the U.S. financial market still periodically comes to a screeching halt when everyone turns their attention to a group of 12 economic oracles, the members of the Federal Open Market Committee (FOMC). 

Though wise, thoughtful, and highly qualified, the 12 FOMC members carry an extremely heavy burden in determining the direction of the world’s most influential economy.

What’s The Alternative?

Does the burden on the FOMC have to be so heavy, and does such important policy have to be so subjective?

Modern artificial intelligence (AI) can handle much more than pre-programmed instructions. Google Inc GOOG GOOGL’s DQN algorithm learned how to master Atari video games.

Apple Inc. AAPL’s Siri application can adapt to a user’s personal preferences and language usage. And International Business Machines Corp IBM’s Watson and Deep Blue proved capable of defeating human world champions of trivia and chess, respectively.

Related Link: Economist: 'The U.S. Economy Is Addicted To Low Rates'

AI Monetary Policy

Tim Anderson, Managing Director at MND Partners, told Benzinga that while the FOMC’s research team already uses economic algorithms in their modeling, the responsibilities of the FOMC will never completely fall into the hands of AI.

“While it’s a natural progression to say that their economic modeling provides critical input into their monetary policy decision making, I can’t imagine that it would progress to the point where monetary policy decisions would be automatically formulated from algorithmic modeling without any human interaction or oversight,” Anderson explained.

Pros And Cons Of An Automated Fed

Transparency, lack of emotion and (theoretically) mistake-free decision making would be three major advantages of AI monetary policy. Eric Hunsader, the founder and CEO of Nanex, told Benzinga that AI monetary policy would also never be determined by ulterior motives.

“It will be about rules, not favors,” he added.

Despite the advantages of AI, two major fears will likely have to be overcome before U.S. monetary policy is turned over to computers. First, Hunsader mentions the “inevitable bugs” that would come along with such a potentially complex AI system.

Tim Anderson explained to Benzinga the second fear associated with an AI Fed: security.

“Can you imagine the negative repercussions of the FOMC artificial intelligence approach to monetary policy being hacked into by a nefarious group with economic interests diametrically opposed to those of the U.S. economy?”

Irreplaceable Human Elements

As technology continues to advance, some believe that the global economy will eventually be completely operated by AI. “Artificial intelligence will one day be able to replace all human tasks,” Hunsader told Benzinga.

Anderson disagrees. He believes that common sense, professional judgment and psychology will never be completely turned over to AI.

Haim Koschitzky, CEO of analytic search technology company XpoLog, agrees that there are many useful elements of human nature that would be difficult to completely replace in the economy.

“One of the things that would be difficult for AI to do is to be creative and replace intuitive intellect,” Koschitzky told Benzinga. He believes that the best dynamic between humans and AI will continue to be that of cooperation rather than total dependence.

The Human Element

While there’s no way to know what the future holds when it comes to U.S. monetary policy, one thing seems certain: Watson won’t be setting interest rates anytime soon.

For now, the global economy remains reliant on the opinions of 12 air-breathing, blood-pumping, good old-fashioned members of the human race.

Image credit: Public Domain