US Fed Vice Chair Warns "Generative AI Accelerates Asset Bubbles and Crashes"

Collective Behavior and Risk Concentration Amplify Market Volatility
Leads to Power Being Concentrated in the Hands of a Few

Michael Barr, Vice Chair for Supervision at the U.S. Federal Reserve (Fed), warned that despite the advantages of artificial intelligence (AI), it could potentially create new problems.

Michael Barr, Vice Chairman for Supervision at the Federal Reserve (Fed), the central bank of the United States. Photo by Reuters Yonhap News

According to Bloomberg News, Vice Chair Barr said in a speech at the Council on Foreign Relations (CFR) on the 18th (local time), "The use of generative AI can lead to collective behavior and concentration of risks, amplifying market volatility."

He added, "If generative AI systems are designed to maximize profits, they are likely to converge on strategies that maximize returns through market manipulation," further stating, "This could also promote the creation and collapse of asset bubbles."

He also pointed out that generative AI could result in the concentration of power in the hands of a few. Vice Chair Barr said, "We need to pay close attention to the impact of generative AI on economic and political institutions," warning, "There is a risk that economic and political power will be concentrated in the hands of a very small group, benefiting only a few while leaving the rest behind."

Meanwhile, Barr mentioned that the Fed has started using AI under a strong internal monitoring system. He said AI is being used for code testing and has produced results that improve efficiency.

Michael Barr is a financial expert who served as Deputy Secretary of the Treasury during the Obama administration. He was nominated as Vice Chair of the Fed in July 2022 during the previous Biden administration. Throughout his tenure, he has emphasized the need for stablecoin regulation.

Although he initially stated he would not step down until his term ends in 2026, he revealed in early January that he would resign from the Vice Chair position once a successor is appointed. He plans to retain his position as a Fed Board member after his resignation.

Michelle Bowman, who participates in the Fed Board’s Supervision and Regulation Subcommittee, is considered a leading candidate to succeed him.

Jerome Powell, Chair of the Fed, stated at a House hearing last week that the Fed can carry out financial regulation without a Vice Chair for Supervision.

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