Investment banking giant JPMorgan is setting another trend again as they majorly advance in financial trading. The giant financial institution has reportedly created a tool to help them know a financial market outlook by analyzing speeches.
The words of high-profile individuals would be analyzed and help JP Morgan detect if the market would experience a bullish or bearish trend. These trading ai tools would analyze Federal Reserve statements and speeches and then tell if it would influence the market.
Bloomberg was the first to report the new development after saying that the Wall Street investment bank used a ChatGPT-based language model to predict the next market activity. With the ai tool available, JP Morgan has reportedly developed a system that helps them tell if the market will be bullish or bearish. Using a scoring system called the Hawk-Dove Score, the Fed policy signals will be rated on a scale from easy to restrictive, and this would tell the next market activity. A hawk signal means a particular movement in the market, while the dove represents another.
The Hawk-Dove Score was derived from the words "hawkish" and "dovish." Hawkish is a monetary term that means a country's central bank might raise interest rates to control inflation. Dove simply means that a country's central bank might soon be making expansionary policies and lowering interest rates. So with, the trading ai tools JP Morgan has developed would help them get some heads up whenever the government is about to make decisions that would affect the financial market. With this tool, they would know if the federal government is about to create a policy that would lead to a bear or bull market. JPMorgan economist Joseph Lupton reportedly said that "Preliminary applications are encouraging."
Apart from the crypto industry, this tool by JP Morgan can be used to analyze other markets. It is said the tool can also analyze other financial markets like bonds. For instance, if the JP Morgan AI tool is showing hawkish, the Fed might make one-year government bonds increase massively in price.
Feds Sentiments Remain Predominantly Hawkish
The AI tool from JP Morgan predicted that the Fed's sentiment towards the crypto market has remained predominantly hawkish. The JP Morgan model, which they have been using to analyze the market, shows the Fed has been mostly hawkish for the past 25 years. Despite recent fluctuations in their sentiments, the feelings have mainly been hawkish.
According to Bloomberg, the Federal Reserve is still expected to increase interest rates by another 25 basis points to 5.25% next week. This further confirms the AI predictions that the Fed has mainly remained hawkish. The Hawk-Dove Score can still be used to determine whether another rate hike would occur in another Fed meeting. According to reports, if the Hawk-Dove Score shows a 10-point increase, there might be a ten percent chance of a rate hike at the next policy meeting.
However, despite the new AI tools JP Morgan is developing, it seems they are intentionally not letting it come to the limelight. They have even kept it away from most of their employees. But that has not stopped them from creating more prototypes.
According to an annual letter to shareholders earlier this month, JPMorgan CEO Jamie Dimon said the financial company had about 300 AI use cases in production.