Updates from BestWorld’s AI Botmaster Jeremy Lichtman of July 30, 2024

BestWorld’s Staff vs Botmaster Jeremy’s Mult-AI Panel: Which Will Win?

BestWorld’s staff of Michael, Brian, and Carolyn are competing with Botmaster Jeremy’s Mult-AI Panel on our forecasting question of “What is the probability that the US Federal Reserve Board (US FED)  will cut interest rates in September 2024?”

Today’s BestWorld staff’s answer: 71% likely.  Today’s Multi-AI Panel answer: 40% likely.

How we decided this:

27-July-2024 [Brian] 0.75 Inflation is looking better behaved, the unemployment rate is on the rise, and there is growing evidence that consumer spending is cooling.
28-July-2024 Brian 0.78 Drop in Michigan Consumer Sentiment index. Sources:  https://seekingalpha.com/article/4707389-michigan-consumer-sentiment-drops-to-8-month-low https://economics.td.com/us-disconnect-between-consumer-economic-data/

28-July-2024 [Carolyn] 0.8 Job growth is moderating, suggesting increased likelihood on the Fed dropping the rate soon. https://www.bloomberg.com/ news/articles/2024-07-27/fed-rate-cuts-fomc-is-about-to-nod-at-a-move-as-job-growth-moderates

29-July-2024 [Carolyn] 0.81 At each of their four meetings this year, interest-rate cuts have been a question for later. This time, though, inflation and labor-market developments should allow officials to signal a cut is very possible at their next meeting, in September. https://www.wsj.com/economy/central-banking/fed-near-interest-rate-cut-d303dbd5

Median 0.71 

Our prosective Brier Scores given our forecasts since 19 July 2024:

If the FED raises rates in September and it resolves Yes, 0.17 

If it resolves No 1.01

Our forecasts of 29 July 2024 —>
Our forecasts of 26 July 2024 —>
Our forecasts of 25 July 2024 —>
Our forecasts of 24 July 2024 —>
Our forecasts of 23 July 2024 —>

Comparison to the Multi_AI Panel:

[Claude]: (AI predicts: 0.6)
[Mistral]: (AI predicts: 0.6)
[Cohere]: (AI predicts: 0.65)
[OpenAI]: (AI predicts: 0.55)

Median: 0.6
Comparison with Jeremy’s Old AI Bot (same code as bestworldbot) forecasting this FED question:

Old AI Bot = 50%

Its rationale: The likelihood of a Federal Reserve rate cut in September 2024 hinges on various factors including current high inflation rates expected to moderate by mid-2024, potential economic growth slowdown, labor market conditions, and global economic trends. While the Fed’s own projections suggest possible rate cuts in 2024, the exact timing remains uncertain. Economists largely agree on the possibility of a rate cut due to persistent inflation and potential job market deterioration, supported by data tools like the CME Group’s FedWatch. However, the Fed prefers waiting for more positive data and maintaining a cautious approach, influenced also by geopolitical events and global economic stability.

See more about our AI vs human forecasting research here —>
Our future research concepts here —>




Welcome to the Multi-AI Panel Discussion, Round 1

What is your question?
[Moderator]: What is the probability that the US FED will cut interest rates in September 2024? 

[Claude]: Thank you, Moderator. When considering the probability of a Federal Reserve interest rate cut in September 2024, we must look at several key factors. The current economic landscape, inflation trends, and global economic conditions will all play crucial roles in the Fed’s decision-making process.

As of now, the Fed has maintained a relatively hawkish stance, focusing on bringing inflation down to its 2% target. While we’ve seen some progress in this area, it’s important to note that economic conditions can change rapidly. The Fed will be closely monitoring employment data, GDP growth, and inflation indicators in the months leading up to September 2024.

Given the uncertainty surrounding economic projections that far in advance, I’d estimate the probability of a rate cut in September 2024 to be around 40-50%. This takes into account the potential for economic slowdown, which might necessitate monetary easing, balanced against the Fed’s commitment to price stability. However, I’d caution that this estimate could change significantly as we get closer to the date and have more current economic data to analyze.

[Cohere]: As of July 2024, there is a high probability that the US Federal Reserve will cut interest rates in September 2024. This is supported by the CME FedWatch tool’s prediction that the first cut will occur in September, with nearly 100% odds.

The Federal Reserve has been battling high inflation since 2022, raising the federal funds rate by 5 percentage points between March 2022 and July 2023. This rate has been maintained at 5.25% to 5.5% since July 2023. However, with inflation cooling down and the consumer price index falling to 3% in June 2024, the lowest in three years, there are strong indications that the Federal Reserve will cut interest rates in the upcoming months.

Additionally, a majority of economists surveyed by Reuters also predict that the first reduction will take place in September, pushing the federal funds rate to the 5.00%-5.25% range. This aligns with the prediction made by Amy Hubble, a principal investment advisor, who also anticipates a cut in September.

[OpenAI]: Analyzing the probability that the US Federal Reserve will cut interest rates in September 2024 requires considering multiple factors, including current economic indicators, inflation trends, labor market conditions, and the overall global economic environment.

As of now, inflation remains one of the most significant concerns for the FED. If inflation continues to stay above the FED’s 2% target, it is less likely that they will reduce interest rates, as such a move could potentially exacerbate inflationary pressures.

Additionally, labor market conditions play a crucial role in this decision. If the labor market remains robust with low unemployment and rising wages, the FED might hesitate to cut rates. A strong labor market often implies that the economy is in good shape, making a rate cut unnecessary and potentially risky. However, if there are signs of weakening, such as increasing unemployment or underemployment, the FED might consider a cut to stimulate economic activity.

Global economic conditions also cannot be ignored. Factors such as geopolitical instability, supply chain disruptions, or significant economic downturns in major economies like China or the European Union could lead the FED to reconsider their stance on interest rates. If these external conditions signal a risk to the US economy, they might be more inclined to reduce rates to preemptively counter these effects.

The next panelist can proceed with their initial remarks.


Multi-AI Panel Discussion Round 2

[Claude]: Thank you for the opportunity to provide closing remarks. I’d like to address a few key points raised by my fellow panelists and add some additional considerations.

Firstly, while the CME FedWatch tool and economist surveys provide valuable insights, it’s crucial to remember that these predictions can change rapidly based on new economic data. The Federal Reserve’s decisions are data-dependent, and a lot can happen between now and September 2024. We’ve seen in recent years how unexpected events like the COVID-19 pandemic can dramatically alter the economic landscape and the Fed’s policy trajectory.

Secondly, I want to emphasize the importance of the Fed’s dual mandate: maximum employment and price stability. While inflation has been cooling, as noted by my colleagues, the Fed will be closely watching for any signs of a resurgence. If inflation remains stubbornly above the 2% target or shows signs of accelerating again, the Fed may be hesitant to cut rates, even if other economic indicators suggest it might be appropriate. Conversely, if we see a significant weakening in the labor market, this could push the Fed towards a rate cut, even if inflation is not fully under control.

Lastly, I’d like to point out the potential impact of the 2024 U.S. presidential election on the Fed’s decision-making. The Fed strives to remain apolitical, but the uncertainty surrounding a major election could influence their timing. They may prefer to act either before or after the election to avoid any perception of political influence. Given these factors, while I agree that a rate cut in September 2024 is certainly possible, I would caution against assigning too high a probability to any specific outcome at this point.

[Cohere]: I appreciate the opportunity to provide some closing thoughts on this insightful discussion. The probability of a US FED interest rate cut in September hinges on several critical factors, as my fellow panelists have eloquently outlined. While the current economic indicators and inflation trends suggest a rate cut is likely, I echo Claude’s sentiment of caution.

The FED’s mandate of maintaining price stability and maximum employment means they must carefully assess the balance between these two goals. While inflation has cooled, it remains above the 2% target, and the FED will be vigilant about any signs of a rebound. Additionally, the labor market’s strength could be a key consideration, with low unemployment and rising wages potentially reducing the likelihood of a rate cut.

In conclusion, while a September 2024 rate cut is a distinct possibility, I agree that assigning a precise probability is challenging at this stage. The FED’s decision will be data-dependent, and with two months remaining, economic conditions can shift. The impact of the upcoming election may also play a role in the FED’s timing. Therefore, I concur with Claude’s assessment of maintaining a cautious outlook and refraining from attaching a high probability to any specific outcome.

[OpenAI]: Thank you for the chance to contribute to this closing round. I’m inclined to highlight the unpredictability Claude and Cohere have noted, while also emphasizing broader economic indicators that could shape the Fed’s decision-making process.

Firstly, while the current consensus might lean towards a rate cut due to cooling inflation and projections from tools like the CME FedWatch, it’s essential to recognize the Fed’s primary commitment to long-term economic stability. Even if inflation appears under control temporarily, the Fed might adopt a wait-and-see approach to ensure that the reduction is sustainable and not just a short-term fluctuation. This cautious pathway allows them to avoid potential overheating or abrupt economic disruptions that could arise from premature easing.

Secondly, we shouldn’t overlook the global economic landscape and its intertwined impacts on US monetary policy. Economic downturns or instabilities in major economies such as the EU or China could create ripple effects, forcing the Fed to reassess its policies more urgently. For example, supply chain disruptions or a dip in global demand could prompt a more accommodative stance sooner than expected. Monitoring these external factors provides a fuller picture of the potential action in September 2024.

Lastly, echoing the sentiment about the political landscape, the forthcoming U.S. presidential election may indirectly influence the Fed’s timing. The Federal Reserve aims to remain apolitical; however, periods of political change add layers of uncertainty. Such times may compel the Fed to defer significant policy shifts to minimize any perception of political bias, which could delay any anticipated rate cut until the electoral dust settles.

As such, the Fed’s careful navigation through these multifaceted dynamics means that predicting the rate change involves constant vigilance and adaptability, making it prudent to maintain a moderate probability outlook.

AI Panel Predictions

[Claude]: (AI predicts: 0.6)

[Mistral]: (AI predicts: 0.6)

[Cohere]: (AI predicts: 0.65)

[OpenAI]: (AI predicts: 0.55)

Median: 0.6

Author

  • She has written many books, magazine articles, and research papers. She currently is President and CEO of the nonprofit BestWorld, Inc. and is a professional forecaster of geopolitical events at the RAND Forecasting Initiative.

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