Raphael Stevens

So much of finance is automated these days you can forget quite how strongly markets echo human rhythms. Yet stock exchanges still ring their opening and closing bells at either end of the working day designed a century ago in Henry Ford’s car factory; the more civilised of them even break for an hour at lunch. The foreign-exchange market notionally operates around the clock, but it is a brave soul who attempts a big order during London’s early hours, before the City is open for business. And it is not just daily routines that matter—seasonal ones do, too. Spare a thought, then, for the 20-somethings left to run the northern hemisphere’s trading desks over the next few weeks, while their bosses doze on a beach. More

Federal Reserve officials held short-term interest rates steady, but indicated that inflation is getting closer to its 2% target.
Central bankers made no obvious indications that a rate cut was imminent. Instead, they maintained their statement that more progress is needed before rate reductions can happen.
“The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance,” the Federal Open Market Committee’s post-meeting statement said.

WASHINGTON – Federal Reserve officials on Wednesday held short-term interest rates steady but indicated that inflation is getting closer to its target, which could open the door for future interest rate cuts.
Central bankers made no obvious indications, though, that a reduction is imminent, choosing to maintain language that indicates ongoing concerns about economic conditions, albeit with progress. They also preserved a declaration that more progress is needed before rate reductions can happen.

“The Committee judges that the risks to achieving its employment and inflation goals continue to move into better balance,” the Federal Open Market Committee’s post-meeting statement said, a slight upgrade from previous language.
“Inflation has eased over the past year but remains somewhat elevated,” the statement continued. “In recent months, there has been some further progress toward the Committee’s 2 percent inflation objective.”
However, speaking with the media, Chair Jerome Powell indicated that while no decision has been made about actions at future meetings a cut could come as soon as September if the economic data showed inflation easing.
“If that test is met, a reduction in our policy rate could be on the table as soon as the next meeting in September,” Powell said.

Stocks react to Powell comments

Markets had been looking for signs that the Fed will reduce rates when it next meets in September, with futures pricing pointing to further cuts at the November and December meetings, assuming quarter percentage point moves. Stocks rallied to the highest levels of the day on Powell’s comments.

As for the Fed’s statement, its language also represented an upgrade from the June meeting, when the policy statement indicated only “modest” progress in bringing down price pressures that two years ago had been running at their highest level since the early 1980s. The previous statement also characterized inflation as simply “elevated,” rather than “somewhat elevated.”
There were a few other tweaks as well, as the FOMC voted unanimously to keep its benchmark overnight borrowing rate targeted between 5.25%-5.5%. That rate, the highest in 23 years, has been in place for the past year, the result of 11 increases aimed at bringing down inflation.
One change noted that committee members are “attentive” to the risks on both sides of its mandate for full employment and low inflation, dropping the word “highly” from the June statement.
Still, the statement kept intact one key sentence about the Fed’s intentions: “The Committee does not expect it will be appropriate to reduce the target range until it has gained greater confidence that inflation is moving sustainably toward 2 percent.”
That phrase has underscored the Fed’s data dependence. Officials insist they are not on a predetermined course for rates and won’t be guided by forecasts.

Price pressures off 2022 peak

Economic data of late has indicated that price pressures are well off the boil from their peak in mid-2022, when inflation hit its highest level since the early 1980s.
The Fed’s preferred measure, the personal consumption expenditures price index, shows inflation around 2.5% annually, though other gauges indicate slightly higher readings. The central bank targets inflation at 2% and has been insistent that it will stick with that goal despite pressure from some quarters to tolerate higher levels.
Though the Fed has held to its tightest monetary policy in decades, the economy has continued to expand.
Gross domestic product registered a 2.8% annualized growth rate in the second quarter, well above expectations amid a boost from consumer and government spending and restocking of inventories.

Labor market data has been a little less robust, though the 4.1% unemployment rate is far from what economists consider full employment. The Fed statement noted that unemployment “has moved up but remains low.” A reading Wednesday from payrolls processing firm ADP showed July private sector job growth of just 122,000, indicating that the labor market could be weakening.
However, there was some positive inflation data in the ADP report, with wages increasing at their slowest pace in three years. Also Wednesday, the Labor Department reported that costs of wages, benefits and salaries increased just 0.9% in the second quarter, below expectations and the 1.2% level in the first quarter.
Fed officials have vowed to proceed carefully, despite signs that inflation is weakening and worries that the economy won’t be able to withstand the highest borrowing costs in some 23 years for much longer. Their position got some fortification Wednesday, when yet another economic report showed that pending home sales surged a stunning 4.8% in June, defying expectations for a 1% increase.

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This is a comparison of Wednesday’s Federal Open Market Committee statement with the one issued after the Fed’s previous policymaking meeting in June.
Text removed from the June statement is in red with a horizontal line through the middle.

Text appearing for the first time in the new statement is in red and underlined.
Black text appears in both statements.

Arrows pointing outwards

Follow along with Federal Reserve Chair Jerome Powell’s press conference here.

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An automated financial advisor called PortfolioPilot has quickly gained $20 billion in assets in a possible preview of how disruptive artificial intelligence could be for the wealth management industry.
The service has added more than 22,000 users since its launch two years ago, according to Alexander Harmsen, founder of Global Predictions, which launched the product.
The San Francisco-based startup raised $2 million this month from investors including Morado Ventures to fund its growth, CNBC has learned.

AI-generated responses are becoming more common, whether travelers know or not.
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An automated financial advisor called PortfolioPilot has quickly gained $20 billion in assets in a possible preview of how disruptive artificial intelligence could be for the wealth management industry.
The service has added more than 22,000 users since its launch two years ago, according to Alexander Harmsen, co-founder of Global Predictions, which launched the product.

The San Francisco-based startup raised $2 million this month from investors including Morado Ventures and the NEA Angel Fund to fund its growth, CNBC has learned.
The world’s largest wealth management firms have rushed to implement generative AI after the arrival of OpenAI’s ChatGPT, rolling out services that augment human financial advisors with meeting assistants and chatbots. But the wealth management industry has long feared a future where human advisors are no longer necessary, and that possibility seems closer with generative AI, which uses large language models to create human-sounding responses to questions.
Still, the advisor-led wealth management space, with giants including Morgan Stanley and Bank of America, has grown over the past decade even amid the advent of robo-advisors like Betterment and Wealthfront. At Morgan Stanley, for instance, advisors manage $4.4 trillion in assets, far more than the $1.2 trillion managed in its self-directed channel.
Many providers, whether human or robo-advisor, end up putting clients into similar portfolios, said Harmsen, 32, who previously cofounded an autonomous drone software company called Iris Automation.
“People are fed up with cookie-cutter portfolios,” Harmsen told CNBC. “They really want opinionated insights; they want personalized recommendations. If we think about next-generation advice, I think it’s truly personalized, and you get to control how involved you are.”

AI-generated report cards

The startup uses generative AI models from OpenAI, Anthropic and Meta’s Llama, meshing it with machine learning algorithms and traditional finance models for more than a dozen purposes throughout the product, including for forecasting and assessing user portfolios, Harmsen said.
When it comes to evaluating portfolios, Global Predictions focuses on three main factors: whether investment risk levels match the user’s tolerance; risk-adjusted returns; and resilience against sharp declines, he said.
Users can get a report card-style grade of their portfolio by connecting their investment accounts or manually inputting their stakes into the service, which is free; a $29 per month “Gold” account adds personalized investment recommendations and an AI assistant.
“We will give you very specific financial advice, we will tell you to buy this stock, or ‘Here’s a mutual fund that you’re paying too much in fees for, replace it with this,'” Harmsen said.
“It could be simple stuff like that, or it could be much more complicated advice, like, ‘You’re overexposed to changing inflation conditions, maybe you should consider adding some commodities exposure,'” he added.
Global Predictions targets people with between $100,000 and $5 million in assets — in other words, people with enough money to begin worrying about diversification and portfolio management, Harmsen said.
The median PortfolioPilot user has a $450,000 net worth, he said.  
The startup doesn’t yet take custody of user funds; instead it gives paying customers detailed directions on how to best tailor their portfolios. While that has lowered the hurdle for users to get involved with the software, a future version could give the company more control over client money, Harmsen said.
“It’s likely that over the next year or two, we will build more and more automation and deeper integrations into these institutions, and maybe even a Gen 2 robo-advisor system that allows you to custody funds with us, and we’ll just execute the trades for you.”

‘Massive shake up’

Harmsen said he created the first version of PortfolioPilot a few years ago to manage his own newfound wealth after selling his first company.
He’d grown frustrated after meeting more than a dozen financial advisors and realizing that they were “basically just salespeople trying to give access to this fairly standard” approach, he said.
“It felt like a very real problem for me, because the only alternative I saw on the market was, you know, basically becoming a day trader and becoming my own portfolio manager,” Harmsen said.
“I wanted hedge fund-quality tools and ways to think about risk and downside protection, and portfolio management across all of my different accounts and the buckets of money in crypto and real estate,” he said.
So around the time he was starting a family and buying a home in San Francisco, he began coding a program that could manage his investments.
After realizing it could have a broader use, Harmsen began building a team for Global Predictions, including three former employees of Bridgewater Associates, the world’s largest hedge fund.

The company’s rise has attracted regulatory scrutiny; in March, the Securities and Exchange Commission accused Global Predictions of making misleading claims in 2023 on its website, including that it was the “first regulated AI financial advisor.” Global Predictions paid a $175,000 fine and changed its tagline as a result.
While today’s dominant providers have been rushing to implement AI, many will be left behind by the transition to fully automated advice, Harmsen predicted.
“The real key is you need to find a way to use AI and economic models and portfolio management models to generate advice automatically,” he said.
“I think that is such a huge jump for the traditional industry; it’s not incremental, it’s very black or white,” he said. “I don’t know what’s going to happen over the next 10 years, but I suspect there will be a massive shake up for traditional human financial advisors.” More