The Supplemental Retirement Board Meeting held on August 3, 2023, in Portsmouth, Virginia, focused on the recent trends in the financial markets, particularly the impact of artificial intelligence (AI) on economic growth and inflation.

During the meeting, participants discussed how AI has become a significant driver of market optimism, particularly following Microsoft's announcement of AI integration into its search functions. This development has led to a surge in interest and investment in technology stocks, notably Nvidia, which has seen its stock price double. The conversation highlighted a shift in market dynamics, moving from a reliance on a few major companies—often referred to as the "big 7"—to a broader market recovery that includes small-cap stocks and non-U.S. markets.

The board members expressed confidence that AI will continue to be a transformative force in various industries, potentially leading to lower inflation rates. They noted that inflation, which peaked at 9% during the pandemic, has now decreased to around 3%. This decline is attributed to several factors, including technological advancements that enhance productivity and an aging demographic that exerts downward pressure on wages.

Concerns were raised about the sustainability of the recent stock rally, with some members suggesting that valuations may have become inflated due to the hype surrounding AI. However, the overall sentiment remained positive, with expectations that the Federal Reserve's actions to control inflation will continue to stabilize the economy.

Additionally, the meeting touched on the bond market, which has shown signs of recovery after a historically poor performance in 2022. The board noted that investment-grade bonds have gained about 2% in the first half of the year, indicating a normalization of market conditions.

In conclusion, the meeting underscored the importance of AI as a catalyst for economic change and its potential to influence inflation and market performance moving forward. The board plans to continue monitoring these trends closely as they develop.