Fed’s Miran: I support three, possibly four rate reductions in the coming year

Stephen Miran Discusses US Monetary Policy at Global Macro Sessions

During a panel at the Reinventing Bretton Woods Committee Global Macro Sessions in Washington, DC, Stephen Miran, a representative of the Federal Reserve, addressed the current state of US monetary policy. Miran highlighted the need for the Fed to proceed with caution, noting that inflation concerns persist and that future policy moves will be guided by the latest economic data.

Main Insights from Stephen Miran

• Miran anticipates the possibility of three, or potentially four, interest rate reductions within the year.
• He projects that, in a year's time, the 12-month Personal Consumption Expenditures (PCE) inflation rate could align with the 2% target.
• According to Miran, the recent energy shock has not significantly altered the inflation outlook for the next 12 to 18 months compared to the pre-war period.
• He currently expects that only three rate cuts may occur for the remainder of the year.
• Miran sees no indication of a developing wage-price spiral, and believes long-term inflation expectations remain stable.
• He maintains that it is reasonable to expect further declines in core goods prices and housing inflation.
• Even before the onset of the war, the underlying factors driving inflation were becoming increasingly challenging for the Fed.
• The conflict has heightened the range of risks surrounding the central inflation forecast.
• Miran argues that blaming tariffs for rising goods prices is unjustified, and that it is misleading to attribute broad price increases solely to tariffs.
• He sees no evidence that the trend of a cooling labor market has reversed.
• Miran suggests the Fed should aim for a neutral interest rate, which he estimates could be as low as 2.5%.
• He assesses the real neutral policy rate to be approximately 0.5%.
• He observes that the historical link between economic growth and unemployment has weakened, possibly due to factors such as artificial intelligence.
• Changes in consumer spending patterns, influenced by energy prices, are weighing on economic growth, despite the US being a net energy exporter.