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Robots Can Now Decode the Cryptic Language of Central Bankers

June 25, 2019

(Bloomberg) — Robots are on their way to cracking one of the world’s toughest codes: central banker speak.

In a matter of seconds, machines that mimic the human brain can read through dense and obscure policy statements and then offer a prediction. The humans who develop and use them say artificial intelligence gets it right, more often than not.

Robots that learn as they go “not only analyze communications faster than humans, but also mitigate several human shortcomings,” said Evan Schnidman, the founder of St. Louis-based Prattle Analytics LLC, which develops and sells computer-generated research on 15 central banks to hedge fund clients on Wall Street. “Human confirmation bias can lead to substantial analytical errors.”

For central bankers who have long thrived on wielding the power of words, growing use of the technology means they’ll need to pay even closer attention to their language choices, especially if computers seize on historical patterns humans tend to miss. Some central banks are already starting to vet communications through machines to gauge how they’ll be interpreted, although Prattle wouldn’t reveal which ones.

Schnidman, who did a PhD at Harvard University on how central bank communications impact financial markets before starting Prattle in 2014, charges $60,000 a year for three to five users to access analysis.

It takes about 45 seconds for the neural network of Prattle’s robots to read a 500-word statement and map the words over 80 billion connections to learn how the language is interconnected. It then draws on all prior language from that central bank to determine the likely market impact. For Federal Reserve minutes, it’s even faster: clients start receiving analysis in less than a millisecond.

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