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Investing.com -- In a speech at the Council on Foreign Relations today, Federal Reserve Vice Chair for Supervision Michael Barr discussed the rapid evolution of artificial intelligence (AI) and its potential implications for businesses, regulators, and society. Barr focused particularly on Generative AI, a subset of AI that has seen significant growth and integration into economic activity in recent years.
Generative AI (GenAI), compared to earlier iterations of AI, is capable of generating content, thus significantly enhancing productivity across a range of knowledge-based activities. It also allows for use by individuals without coding skills. GenAI is expected to become a general-purpose technology, with widespread adoption and continuous improvement, boosting productivity across various sectors of the economy. Despite limited deployment in some business functions, businesses in nearly every sector are exploring ways to utilize this technology.
Alongside GenAI, firms are also exploring Agentic AI, GenAI systems that produce new content and proactively pursue goals by generating innovative solutions and acting upon them quickly and at scale. This could potentially lead to a collective intelligence surpassing human capabilities in problem-solving and collaboration, transforming research, development, and society at large.
Barr outlined two hypothetical scenarios for GenAI’s evolution. The first scenario involves only incremental adoption that primarily enhances what humans do today, leading to widespread productivity gains. In this scenario, GenAI tools would enhance efficiency across industries, leading to incremental but meaningful effects on people’s lives. For instance, in healthcare, GenAI could reduce administrative burdens, assist with diagnostics, and personalize treatment plans. In education, GenAI could alleviate administrative tasks for teachers and allow for personalized lessons.
The second scenario involves transformative change where GenAI extends human capabilities with far-reaching consequences. In this scenario, GenAI systems could make rapid breakthroughs in biotechnology, robotics, and energy, reshaping existing industries and creating new ones. For instance, GenAI applications in healthcare could enable therapies that target genetic mutations and cure previously incurable diseases.
However, Barr also highlighted the potential risks associated with GenAI. The speed, automaticity, and ability to optimize financial strategies that make GenAI attractive also present risks. When the technology becomes ubiquitous, use of GenAI could lead to herding behavior and the concentration of risk, potentially amplifying market volatility. As GenAI agents will be directed to maximize profit, they may converge on strategies to maximize returns through coordinated market manipulation, potentially fueling asset bubbles and crashes.
In conclusion, while the impact of AI will vary across industries and the reality is evolving, the scenarios outlined by Barr provide a framework to begin thinking about how to respond to developments in GenAI. Rapid advances in this technology, such as Agentic AI and advancements in open-source models, underscore the importance of understanding what it means for individuals, businesses, and markets.
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