Fed's Barr sounds off on risks from AI's speed

Fed's Barr sounds off on risks from AI's speed
The top cop at the Federal Reserve speaks out on possible herding behavior, with economic "gains being realized only by a small group."
FEB 18, 2025
By  Bloomberg

Federal Reserve Vice Chair for Supervision Michael Barr said the attributes that make artificial intelligence attractive are the same ones that present risk, with speed and automaticity generating new issues at a wide scale.

Generative AI use could “lead to herding behavior and the concentration of risk, potentially amplifying market volatility,” Barr said Tuesday in prepared remarks before the Council on Foreign Relations. “As GenAI agents will be directed to maximize profit, they may converge on strategies to maximize returns through coordinated market manipulation, potentially fueling asset bubbles and crashes.”

He also said that non-banks may be “more nimble and risk-forward” in incorporating artificial intelligence into their operations, which could push more financial activities into less transparent areas of the system.

“We should be attuned to the impact of GenAI on our economic and political institutions,” Barr said. “There’s a risk that it concentrates economic and political power in the hands of the very few and could lead to the gains being realized only by a small group, while the rest are left behind.”

Barr, a Biden-era appointee, announced last month that he would step down from his role as the Fed’s top bank cop on Feb. 28 or earlier if a successor is confirmed, citing a the risk of dispute over the position.

He plans to remain on the Board of Governors, so President Donald Trump would likely have to appoint a replacement from the current slate of Board officials. The next Fed vacancy isn’t expected until 2026, although another board member could decide to step down before then. 

Michelle Bowman, who sits on the supervision and regulation subcommittee at the Fed board, is considered to be a possible successor. She has been openly critical of some of Barr’s policy initiatives.

Powell said at a House hearing last week the Fed can proceed on financial regulation without a vice chair for supervision, adding the potential for larger swings in policy since the position was created has been “not great for the institutions that we regulate.”

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