In his first public speech as a member of the Federal Reserve Board, Stephen Miran dissented sharply with his colleagues, calling for aggressive interest rate cuts and warning that current monetary policy is "very restrictive".
Miran Argues Real Neutral Rate Is ‘Near Zero’
Speaking at The Economic Club of New York, Miran argued that the appropriate federal funds rate is in the "mid-2 percent area," nearly two percentage points below its current level, and that failing to act poses "material risks to the Fed's employment mandate".
Miran, in remarks dated Sept. 22, made it clear that his view "diverges from those of other FOMC members". He contended that policymakers are insufficiently accounting for powerful nonmonetary forces that are depressing the neutral rate of interest.
He expressed that the rate is neither expansionary nor contractionary. His analysis, which adjusts for recent shifts in border control, fiscal legislation, and trade policy, led him to conclude that the new real neutral rate is "near zero".
Policy Changes Are Altering Economic Landscapes, Explains Miran
At the core of his argument are recent policy changes that he believes have fundamentally altered the economic landscape.
Miran cited a dramatic shift in U.S. border policy, which has reduced population growth and is putting downward pressure on rent inflation and the neutral rate.
He also pointed to new tax and trade policies, such as increased tariff revenue, which he estimates are significantly boosting national savings. According to Miran, this increase in the supply of loanable funds reduces the neutral rate, meaning policy is much tighter than it appears.
Miran’s ‘General Ballpark’ Calculations
While acknowledging that his calculations are a "general ballpark," Miran stressed the urgency of his position.
He framed the debate as a choice between maintaining the Fed's inflation-fighting credibility and protecting American jobs. Leaving interest rates almost two percentage points "too tight," he concluded, "risks unnecessary layoffs and higher unemployment".
Price Action
The SPDR S&P 500 ETF Trust (NYSE:SPY) and Invesco QQQ Trust ETF (NASDAQ:QQQ), which track the S&P 500 index and Nasdaq 100 index, respectively, rose on Monday. The SPY was up 0.47% at $666.84, while the QQQ advanced 0.59% to $602.20, according to Benzinga Pro data.
On Tuesday, the futures of the Dow Jones, S&P 500, and Nasdaq 100 indices were mixed.
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