The generative AI incubator takes the private sector concept and a bias toward action and marries it with the need to be responsible and manage risk, Sunayna Tuteja, chief innovation officer of the Federal Reserve System, said last week at the “Federal Innovation Series: Leading in the Era of AI” event, presented by Microsoft and FedScoop.

“At the Fed we’re really good at, you know, writing white papers and thinking, and thinking about thinking about thinking more,” Tuteja said. But with generative AI, “this is one of those technologies where you have to think but you also have to do, so how do we create a framework that enables us to do that?”

Tuteja’s comments came just after President Joe Biden signed a landmark executive order on AI and the Office of Management and Budget issued guidance to agencies on the use of the technology and, among other things, evaluate potential applications of generative AI.

Tuteja looked back on her experience in the private sector at TD Ameritrade, prior to joining the Fed in 2021, where incubators are fairly common as inspiration for the idea, she said.

“In the private sector, we used to say: Go from idea to IPO — the Fed doesn’t let you IPO obviously, so for the Fed it is how do we go from idea to implementation,” she said of incubators. “And the reason this construct is helpful is it really enables us to interrogate this technology, but through this eclectic combo of the bold and the boring. In order for us to do big, baller, bold things, it actually requires us to do a lot of important boring things in a very consistent manner.”

While Tuteja didn’t speak to any specific examples of generative AI concepts being tested in the incubator currently, she pointed to areas that consume and generate a lot of data as the best places to start — such as payment rails and supervision and regulation.

“These payment rails consume a lot of data, but they also generate a lot of data. So the way we’re applying generative AI is really as we look at all the data that’s coming from our ACH payment rails or FedNow or cash, the usage statistics, etc., how do we now take this … how do we apply the right models so that we can extract insights that enables us to make decisions not just from … an investment perspective, but also from a customer experience perspective, really understanding which payment rail does the customer want to use, at what time, for what purpose and kind of align our business decisions accordingly,” she said, adding that the goal is to augment and turbocharge the work humans are doing.

The Federal Reserve System’s generative AI incubator is rooted in several guiding principles. Top on that list is “we’ve got to put hands on keys,” Tuteja said, meaning practitioners must actually explore and use the technology. “This is not a theoretical exercise. So how do we create the right guardrails and safe spaces within our organization that enables and empowers as many of our colleagues to put hands on keys and start to think about the value of this technology on the businesses that they lead?” she said.

The agency is also taking an approach of “meaningful optionality” and being driven by business problems and business trends, rather than chasing shiny objects, said Tuteja. Further, she said, “it behooves us to be pragmatic about this … from day one, bring in … legal and compliance and security and risk so you’re designing the solution with those appropriate guardrails in mind, because if you don’t do that, you may share something really cool, but it may never scale. So then what’s the value?”

Finally, there must be a bias for action, Tuteja said. “This is not something that we need to do in years and decades. This is stuff that we’ve got to move at a clip that’s about weeks and months and kind of learn by doing.”

Striking a balance between that action and the need to be safe and responsible is a sweet spot for the federal government,” she said.

Tuteja explained: “I think in the public sector, we sometimes are really good at interrogating the risk of doing something new to the absolute nth degree, which is important. But we don’t spend enough time thinking about what is the risk of not doing something new. So that balanced conversation is critical. For us, that’s why the incubator model is important because we’re not going to go start applying these new capabilities to crown jewels and to, you know, to the systems that are doing really important work day in and day out. But that doesn’t obfuscate the fact that we will never do anything, right?”

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In a series of panel discussions at the “Federal Innovation Series: Leading in the Era of AI” event, agency officials and technology experts from Microsoft touched on ways government agencies are harnessing AI to enhance mission support, ensure responsible innovation, and bolster cybersecurity. The event was presented by FedScoop and sponsored by Microsoft.

Candice Ling, senior vice president of Microsoft’s federal business, kicked off the conference with a call to action for government agencies to embark on a transformational journey through a process of co-innovation and collaboration to modernize government operations. Ling highlighted Microsoft’s commitment to responsible and ethical AI solutions to safeguard government systems. She stressed how the company’s principles for responsible AI — including accountability, inclusiveness, reliability, safety, fairness, transparency, and privacy and security — and Microsoft’s experience working with federal agencies can help agencies capitalize on AI to innovate faster and more effectively.

Eileen Vidrine, chief data and AI officer at the Department of Air Force, outlined the department’s goals to provide the necessary framework to “operationalize data and AI for decision advantage” and to be “AI-ready by 2025 and AI-competitive by 2027.” She also reiterated the importance of partnerships across the Air Force, the Defense Department, industry and academia to keep pace with AI’s potential.

Federal Reserve System Chief Innovation Officer Sunayna Tuteja spoke about the importance of problem-solving and the need for appropriate guardrails when designing AI solutions. She encouraged government leaders in the audience to understand but get comfortable with the risks of AI and embrace innovation’s inherent uncertainty. The public sector doesn’t spend enough time thinking about the risk of not doing something, she told the audience.

Chris DeRusha, Federal CISO at OMB, Ginny Badanes, senior director at Microsoft Democracy Forward, and Glen Johnson, chief technology officer at the Department of State, delved into AI’s role in revolutionizing government cybersecurity. AI dramatically expands the capacity of federal agencies to detect anomalies, analyze data, and automate responses to cyber threats, they said.

Pritha Mehra, CIO of the U.S. Postal Service, revealed how USPS is leveraging AI to provide “accurate predictions of where your package is, when it’s going to be delivered and within the exact time.” AI is also helping USPS to document and rewrite legacy code, automate customer calls concerning passport applications and increase its ability to detect fraud, she said.

Brian Abrahamson, associate laboratory director and chief digital officer at Pacific Northwest National Laboratory, urged attendees to educate themselves on the possibilities of AI. He emphasized the importance of pilot projects and shared examples of AI’s transformative applications.

Michael Pencina, chief data scientist at Duke Health and vice dean for data science at the Duke University School of Medicine, joined Jennifer Rostami, assistant commissioner at the General Services Administration’s Technology Transformation Services unit, to discuss the need for ground rules around AI. They underscored the importance of ensuring transparency, trustworthiness, and fairness in applying AI in government. Building trust through governance frameworks and developing blueprints for employees and partners are critical steps public sector leaders need to take, they said.

Also speaking at the event were Patricia O’Neill-Brown, senior advisor at the Defense Intelligence; Kimberly Sablon, principal director for trusted AI and autonomy at the Department of Defense; and James-Christian Blockwood, executive vice president at the Partnership for Public Service. Adding additional perspective from Microsoft were Corporate Vice President, U.S. Government Affairs Fred Humphries; Microsoft Federal General Manager Brian Keith; Director for AI Public Policy Danyelle Solomon; Federal Security CTO Steve Faehl; and Vice President Federal Civilian Heidi Kobylski.

The innovation summit came on the heels of a landmark executive order focused on artificial intelligence and new OMB guidance issued by the Biden administration earlier in the week.

Also noted during the event was a new research report, “Gauging the impact of Generative AI on Government,” released by FedScoop last month, which examined how federal agency leaders are preparing to adopt AI. Microsoft underwrote the report.

Learn more about how AI can support government services from Microsoft.

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