By Howard Schneider and Michael S. Derby
WASHINGTON (Reuters) – Newly appointed Federal Reserve Governor Stephen Miran expressed his belief on Monday that the Federal Reserve has miscalculated the tightness of its monetary policy. He warned that without aggressive interest rate cuts, the job market could face substantial risk. This viewpoint stands in contrast to the cautious stance taken by three of his colleagues, who emphasize the need for vigilance regarding inflation.
Miran, who is currently on leave from the Trump administration, shared these insights during an address at the Economic Club of New York. He argued that the Fed is not fully aware of how changes in immigration, taxation, and regulation policies are influencing the economy. According to Miran, these factors are likely pushing down the so-called “neutral” interest rate, which neither stimulates nor restricts investment and spending.
He indicated that the current benchmark interest rate, ranging from 4% to 4.25%, is considerably more restrictive than Federal Reserve officials believe. Miran advocates for a reduction of rates by approximately two percentage points, recommending rapid easing in alignment with President Donald Trump’s requests, but diverging markedly from the views of even the most dovish colleagues on the Federal Open Market Committee (FOMC).
In his remarks, Miran stated, “Monetary policy is well into restrictive territory. Keeping short-term interest rates about two percentage points too tight risks unnecessary layoffs and increased unemployment.” He suggested that failing to adequately account for the significant downward pressure on the neutral rate caused by changes in immigration and fiscal policies is leading to the misconception that current policy is less restrictive than it genuinely is.
Miran, who recently dissented during the Fed’s decision to cut the benchmark rate by a quarter of a percentage point, stated that he deemed a half-point reduction more appropriate. He also projected the possibility of half-point cuts in the Fed’s subsequent two meetings, a forecast he acknowledged may not align with the views of other FOMC members.
These comments were made to elaborate on his dissent and low rate projections. Fed Chair Jerome Powell, following the policy meeting, is scheduled to speak about the economic outlook on Tuesday.
MIRAN’S FED COLLEAGUES SEE MORE LIMITED ROOM TO EASE
St. Louis Fed President Alberto Musalem supported the recent quarter-point cut, describing it as a “precautionary measure” to help maintain near-full employment. However, he indicated that the policy rate, when adjusted for inflation, may already be approaching neutral territory.
Musalem remarked, “I believe there is limited room for further easing without making policy excessively accommodative, and we should proceed cautiously.” He emphasized the need for monetary policy to continue combating persistent above-target inflation, cautioning that an overemphasis on the labor market could provoke more harm than good.
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