AI-Based Forecasting and Market Expectations: A Self-Fulfilling Prophecy?

The European Union has been a pioneer in creating a comprehensive legal framework on artificial intelligence (AI). However, some nuanced risks of advancing technologies may be easily overseen. In this research note, we consider the possible impact of accessible AI on the formation of monetary policy expectations and evaluate the implications for monetary policy implementation by central banks. We offer a conceptual model of AI-driven self-fulfilling economic prophecies and discuss eight strategies that central banks may adopt in response to these dynamics. Central banks may face significant challenges in adapting monetary policy frameworks to broad-based AI-driven forecasting, but the rapid pace of technological evolution suggests this task should be a priority.