UBS' AI model says Lagarde was less hawkish in July

According to a new UBS approach, which used AI-based LLMs to measure policy tone for major central banks, ECB President Christine Lagarde’s tone shifted in a less hawkish direction in July relative to the June press conference.

“Communication became more conditional: explicit hawkish statements declined, while mixed and implicitly dovish language increased,” UBS economists say in a note.

“Inflation and energy-related risks dominated the discussion but were framed largely in terms of uncertainty and data dependence.”

The ECB kept rates unchanged on July 23 and hiked rates by 25 bps on June 11.

An LLM is a type of artificial intelligence model trained to recognise patterns in language and generate, summarise, classify or analyse text.

“Compared with her post-Sintra speeches and interviews, however, her tone was marginally more hawkish,” it adds.

The Sintra gathering preceded the collapse of a memorandum of understanding between the United States and Iran. Since the collapse, oil prices have risen sharply, threatening the inflation outlook.