Federal Reserve officials release policy signals: will not adjust interest rates rashly and continue to monitor AI risks.

On Tuesday, Federal Reserve officials stated in a speech that the central bank will not adjust interest rates hastily before a clear decline in inflation trends. Instead, they choose to maintain current policies to address potential economic risks in the future. In addition, the Federal Reserve's regulatory focus on AI technology has increased, indicating that future financial markets may face stricter compliance requirements. Mary Daly, President of the Federal Reserve Bank of San Francisco, said that even though progress towards the 2% inflation target has been slow and hard to detect, there is no need to be discouraged. The U.S. central bank should continue to maintain its current tight monetary policy until a more pronounced downward trend in inflation is observed. Daly stated at a community banking conference in Phoenix, Arizona, "Policy should be restrictive until ... I see us making progress on inflation." She emphasized that the U.S. economy and job market remain strong, so caution must be maintained before making any adjustments to ensure that downward pressure on inflation is sufficient. "We need to carefully assess the situation before taking the next steps to avoid making premature decisions." The Federal Reserve kept its policy rate in the range of 4.25% to 4.50% at the meeting last month and is expected to maintain this level in the future meetings, observing changes in economic data while evaluating the impact of a series of Trump administration policies (including tariffs, immigration, taxes, etc.) on inflation and employment. Daly stressed that these policies could either promote or hinder economic growth, labor supply, and inflation, depending on the "scope, scale, and timing" of the policies. However, with limited information available, the Federal Reserve needs time for evaluation. "We must be patient," she said, and believes that the current monetary policy environment is "in a very favorable position" to take strong measures when necessary. According to the Federal Reserve's favored inflation indicator - the Personal Consumption Expenditures Price Index (PCE), inflation is expected to reach 2.6% by the end of 2023, with some analysts predicting it has already dropped to 2.4% last month. Meanwhile, the unemployment rate in the U.S. in January was 4%, below the long-term sustainable level that most Federal Reserve officials believe. Daly's views are in line with one of the most hawkish officials at the Federal Reserve, Governor Michelle Bowman. Bowman stated on the same occasion on Monday that she wants to "gain greater confidence" and be sure that inflation will continue to decline before considering an interest rate cut. Daly also pointed out that a series of executive orders and policy statements from the Trump administration are bringing significant uncertainty. "Ultimately, we need more information to determine the direction of policy." She emphasized that the Federal Reserve needs to "remain vigilant, carefully assess," and avoid hasty decisions that could be regretted. On Tuesday, Federal Reserve Vice Chairman Michael Barr warned in a speech to the Foreign Relations Committee that the efficiency and automation characteristics of Artificial Intelligence (AI) may bring significant opportunities but could also generate new financial risks on a larger scale. Financial regulatory agencies have always believed that emerging technologies like AI can significantly increase productivity. However, Barr pointed out that the widespread use of Generative AI (GenAI) could "lead to market convergence behavior and risk concentration, amplifying market volatility." "As GenAI agents are guided to maximize profits, they may converge on certain strategies, maximizing returns through coordinated market manipulation, which could fuel asset bubbles and trigger market crashes." He also noted that non-bank institutions may be more flexible and adventurous in introducing AI, which could lead to more financial activities flowing into less regulated "gray areas." "We need to closely monitor the impact of GenAI on economic and political institutions." Barr said, "There is a risk that AI could concentrate economic and political power, allowing profits to be obtained by only a few, while leaving the majority behind." He mentioned that the Federal Reserve has begun using AI internally and has established strict governance systems. Currently, this technology is used for code testing and has improved efficiency. Barr is an official appointed by the Biden administration, who announced last month that he would step down from his role as the Federal Reserve's Vice Chairman for Supervision on February 28 or earlier to avoid controversies surrounding the position. However, he will remain on the Federal Reserve's Board of Governors. Therefore, President Trump may need to appoint a successor from existing board members. The next vacancy on the Federal Reserve Board is not expected until 2026, unless a member resigns early. Market analysts believe that Bowman is a potential successor, as she has previously publicly criticized some of Barr's regulatory policies. Federal Reserve Chairman Powell stated at a congressional hearing last week that even without a Vice Chairman for Supervision, the Federal Reserve can still carry out financial regulatory work. He noted that the position has experienced too much policy volatility since its establishment, which "is not good for regulated entities."