The stock market performed well over the first quarter with large-company stocks rising 10.6%, small-company stocks up 5.2%, and foreign stocks up 5.7%. Bonds, broadly measured, lost ground ending modestly down 0.4%.
The U.S. economy is holding up well, and that’s a challenge for the Federal Reserve. The pandemic economic shock prompted a swift and dramatic response from the Fed which included cutting interest rates to historic lows and introducing substantial monetary infusions into the economy. These efforts were undertaken to ward off a feared economic collapse, and succeeded in doing so, at the cost of new national debt. All this cash entering the economy served to inflate demand, which contributed to a rapid rise in inflation.
To tame the inflationary surge, the Fed began raising interest rates in March 2022 and continued raising them through July 2023, followed by a pause in increases that has continued until today. Rates that run too high, or high for too long, can create the risk of constricting the economy and triggering a recession. To avoid this, the Fed is now in the position of determining the right moment to begin cutting interest rates. The Fed has stated it anticipates cutting rates this year. Recent stock market enthusiasm has been, in large part, propelled by optimism around Artificial Intelligence (AI).
AI is technology that enables computers to simulate human intelligence and problem-solving capabilities on a supercharged scale. On its own or combined with other technologies such as sensors and robotics, AI can perform an immense range of tasks providing leaps forward in productivity.
“Along with the potential benefits, AI carries ethical and social risks, as well as potential for misuse.”
You may have already tried out some of the consumer versions of AI, which have been put to use in applications such as ChatGPT or Google’s Gemini. These AI services can answer complex questions, help draft text, solve mathematical problems, and more.
On a larger scale, AI can be deployed in many industries by analyzing large volumes of data and developing new insights that unearth opportunities with profound potential. Some predict that AI will power economic and societal transformation on a grand scale. However, heightened exuberance may be driving some of the lofty expectations for the technology. In any case, these are among the reasons behind the stock market enthusiasm around companies developing this technology and industries that will benefit from it.
Perhaps more importantly, developers are identifying ways that AI will be able to bring game-changing advancements in economic empowerment for marginalized groups, education, health and hunger, equality and inclusion, and climate action. There are inspired projects in development in each of these areas which may yield meaningful advancements sooner than we may think.
However, every coin has two sides, and AI is no exception. Along with the potential benefits, AI carries ethical and social risks, as well as potential for misuse. As AI technology will be influencing decisions affecting the lives of millions in the future, it is important that fairness is integral to its operations. Fairness is a subjective concept which is influenced by cultural, social, and personal perspectives, though there are objective thresholds that can be targeted.
These risks arise because AI results are driven by preexisting data and algorithms. “Data is frequently imperfect in ways that allow algorithms to inherit the prejudices of prior decision makers, or in ways that may simply reflect widespread biases that are present in society at large,” according to “Big Data’s Disparate Impact,” an essay by UCLA researchers Solon Barocas and Andrew Selbst.
As an example, AI might use algorithms in hiring which could be influenced by data that include societal prejudices that deemphasize diversity and promote similarity. This in turn could result in favoring candidates who are similar to the majority of the community or with employees already in the organization. If biased data finds its way into an AI algorithm, this can result in the propagation and even amplification of entrenched biases.
We believe that with appropriate care and public and regulatory attention, AI risks can be managed and the potential bounty of the technology for humanity and the environment can be realized.
