Federal Reserve Warns of Potential AI Ecosystem Risk

Kansas City Fed's Schmid raises concerns about a potential 'too-big-to-fail AI ecosystem', where large-scale artificial intelligence systems could pose systemic risks to the economy. He notes that this is an area of focus for the Federal Reserve, which is trying to determine whether such risks are present.

Schmid also discussed the role of blockchain technology in banking, suggesting that it has potential for tokenizing deposits and facilitating 24/7 cross-border transactions with reduced friction. However, he emphasizes that managing the AI phenomenon will require a fiscal approach rather than monetary policy intervention.

The Kansas City Fed president also addressed inflation, stating that it remains above target after more than five years. He notes that disruption in payment technologies is expected to continue, particularly in fees for transactions, and predicts that settlement times will become increasingly rapid, potentially leading to changes in workforce demands and balance sheet management.