Study finds central banks only partially shielded from political influence

A new study using AI agents to simulate Federal Reserve meetings found that political pressure significantly polarizes central bank decision-making, even within institutions designed to be independent. The research by George Washington University academics suggests the Fed is “only partially insulated from politics,” revealing how external scrutiny can fragment board consensus and increase dissent in monetary policy discussions.

The simulation setup: Researchers created AI agents modeled on real Federal Open Market Committee (FOMC) members using their historical policy stances, biographies, and speeches to replicate the July 2025 meeting.

• The AI agents processed real-time economic data and financial news to reach policy decisions, mirroring actual Fed deliberations.
• When political pressure was applied during the simulation, the AI agents became more fragmented and dissent increased among board members.

Why this matters: The findings challenge assumptions about central bank independence and suggest that even formal institutional rules may not fully shield monetary policy from political influence.

• “Outside scrutiny can shape internal decision-making, even in an institution guided by formal rules,” according to the study by Sophia Kazinnik and Tara Sinclair.
• The research provides new insights into how political dynamics might affect real-world Fed decision-making processes.

Central banks embracing AI: While no central bank is ready to let AI set monetary policy, many are increasingly using the technology for operational improvements.

• The Fed has conducted research using generative AI to analyze FOMC meeting minutes.
• The European Central Bank employs machine learning models for euro-area inflation forecasting.
• The Bank of Japan uses AI for information gathering and economic analysis, with December research showing how large language models can track shifting price drivers from raw materials to labor costs.

Current adoption phase: Australia’s central bank is testing AI tools for policy-related analytical summaries, but with clear boundaries on usage.

• “To be clear, we are not using AI to formulate or set monetary policy or any other policy,” said Reserve Bank of Australia Governor Michele Bullock on September 3.
• “Instead, we are looking to leverage it to improve efficiency and amplify the impact of staff efforts in areas such as research and analysis.”

The bigger picture: The Bank for International Settlements noted in April that central banks recognize AI’s strategic importance and are actively experimenting with data retrieval and analysis applications.

• However, “many central banks are still in the initial adoption phase” due to the need for adequate governance frameworks and high-quality data standards.
• The technology’s integration requires careful consideration of institutional safeguards and operational protocols.