WILL THE FEDERAL RESERVE PUMP THE BRAKES ON THE GROWING ECONOMY?

This week, all eyes are on the Federal Reserve, which wraps up its monetary policy meeting on Wednesday amidst widespread speculation about how the institution will respond to the growing economy and the pending Trump presidency. Many people expect President-elect Donald Trump’s plans to cut taxes and regulation while investing in infrastructure will further stimulate an economy that is already growing steadily, and it is up to the Federal Reserve to adjust the key interest rate to main stability.

With so much riding on the Federal Reserve’s decision, researchers at Unanimous AI asked UNU to ponder the Fed’s options and consider the impact of any changes. UNU is a Swarm Intelligence platform that allows groups of online users to think together as a “brain of brains” composed of nearly 40 randomly selected individuals from around the world, connected online by real-time Swarm Intelligence algorithms. Swarms have proved to be eerily accurate in the past, outperforming the experts in many fields and correctly predicting the Kentucky Derby Superfecta, turning $20 in nearly $11,000, so it was only natural to see what the Swarm would say about the Fed’s decision. 

First, the Swarm was asked to predict the most likely outcome of the Federal Reserve’s monetary policy meeting.  With that in mind, many analysts are predicting that the Federal Reserve will raise rates by as much as 0.75%, but the Swarm is a bit more conservative in its estimation:

Considering that the Fed typically raises rates when it fears inflation and cuts it when the economy requires stimulus, it makes sense to see if the Swarm would correlate the expected rate hike with inflation in 2017. Inflation has been essentially stagnant for the past few years, but the Swarm expects that to change when Trump takes office.

With that in mind, the biggest remaining question is,  will the economy grow or shrink in the coming year? The usual uncertainties about Presidential transitions have  been heightened since Trump’s election, and many people are justifiably wondering what direction the economy is headed. Here, the Swarm gives reason for optimism.

The Decision Analysis Chart below reveals even more reason for confidence. What you’re seeing is the evolution of the Swarm’s negotiation and eventual arrival at its answer of “Grow ( by a little).” As you can see, that cautiously optimistic response garnered the most support by far at the outset of the question, and only increased its lead over time.

Naturally, many Americans are hoping for an economy that grows by far more than “a little,” but unchecked growth is not healthy in the long-term, nor is it the goal of the Federal Reserve. As William Martin, the former chairman of the Federal Reserve famously quipped, “the role of the Federal Reserve is to remove the punch bowl just when the party gets going.” If the Swarm is right, the Fed will have its hand on the punch bowl tomorrow, but should prove to be a slightly less strict chaperone than many analysts predict.

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