Fed Governor Miran Calls for 2 Percentage Point Rate Cut, Citing "Restrictive" Policy

Federal Reserve Governor Stephen Miran has publicly advocated for a significant reduction in the benchmark interest rate, asserting that current monetary policy is approximately two percentage points too restrictive. Speaking at the Economic Club of New York, Miran detailed his policy projections, emphasizing the need for transparency given his divergent views from other Federal Open Market Committee (FOMC) members. He warned that maintaining such a restrictive stance risks unnecessary layoffs and higher unemployment, potentially jeopardizing the Fed's employment mandate.

Miran, a recent appointee, meticulously outlined his calculations, which suggest the appropriate federal funds rate should be in the mid-2 percent area, significantly lower than the current target. "Today I worked through the arithmetic of how I came to my policy projections for appropriate monetary policy," Miran stated in a social media post, adding, "given the divergence between my views and other FOMC members, I felt it necessary to be meticulous and transparent." He argues that the Federal Reserve has underestimated the impact of recent non-monetary factors on the economy.

His analysis points to shifts in immigration, tax, and regulatory policies as crucial elements reshaping the economic landscape. Miran contends these changes are exerting strong downward pressure on the neutral rate of interest (r*) and influencing inflation, particularly in the housing market where cooling rents are becoming more apparent. He believes these factors allow for and necessitate a more aggressive easing of monetary policy to prevent an output gap.

Miran's stance places him notably outside the consensus within the FOMC, where he was the sole dissenter in a recent vote to lower rates by a quarter percentage point, advocating instead for a half-point cut. Other Fed officials, including St. Louis Fed President Alberto Musalem and Atlanta Fed President Raphael Bostic, have expressed caution regarding further rate reductions, stressing the ongoing need to bring inflation sustainably back to the 2% target. They view policy as less restrictive or see limited room for additional easing.

The Governor's remarks have already reverberated in financial markets, with gold prices reportedly hitting record highs following his call for aggressive rate cuts. Miran's appointment by President Donald Trump has also drawn attention, as Trump has historically criticized the Fed for maintaining high interest rates. Miran's public dissent underscores a growing internal debate within the central bank regarding the appropriate path for monetary policy.