Fed Governor Says Central Banks Must Keep Pace with Financial Market AI Developments
Federal Reserve Board Member Michael S. Barr predicted that artificial intelligence will fundamentally reshape global economies. He said that central banks must adapt quickly to this technology’s rapid evolution.
In remarks at the Singapore Fintech Festival, Mr. Barr said AI is being adopted at a striking pace and emphasized its benefits for operational efficiency, particularly in text analysis, fraud detection, and customer service. He cautioned that its use in critical areas such as credit decisions and trading brings substantial risks, including bias and explainability issues in models, governance gaps, and the potential for AI-driven manipulation or systemic instability. Mr. Barr said central banks must embrace AI to remain effective. He reported that the Federal Reserve is taking a "learning-by-doing" approach by using AI to enhance staff productivity in research, coding, and writing. He also cited the use of generative AI to modernize legacy systems by translating old code, resulting in faster and higher-quality delivery.
Mr. Barr said AI improvements in productivity will require sweeping structural change. He said there are implications for workers, firms, and policymakers. He said the labor market is already showing signs of adjustment, as firms retrain existing workers while slowing new hiring—raising potential challenges for those entering the workforce.
Mr. Barr concluded that understanding, integrating, and keeping pace with AI will be essential for central banks to fulfill their missions in the years ahead.