Could Robots Replace the Fed?

August 29, 2015
Yellen ally pours cold water on rule-based monetary policy

On Saturday a Yellen ally and former adviser at the Fed delivered a provocative retort: the economic models underpinning those simple rules don't work that well, and the best policy decisions come when central bankers look beyond those models to the unexpected forces shaping the economy.

Could Fed robots, using artificial intelligence and rule-based stock market valuation algorithms, have spotted the growing insanity in dotcom stocks? Perhaps.

Could Fed robots have popped the Nasdaq bubble before it became the Nasdaq Hindenberg? Perhaps.

Could Fed robots have spotted the growing insanity of mortgage refinancing offers heading into the Great Recession? Perhaps.

Could Fed robots have popped the housing bubble before it became the housing Hindenberg? Perhaps.

Could Fed robots ever truly replace human Fed monetary policy makers? Probably not. It would be extremely difficult to program a self-learning and adaptive robot to make the exact same epic monetary policy mistakes that a group of isolated and detached ivory tower thinkers could make behind closed doors.

That said, advancements in artificial intelligence using chaos theory could make it possible for robots to replace the Fed at some point in the distant future. And when I say distant future, I really mean early Monday morning just before the markets open, lol. Sigh.