Federal Reserve Governor Miran Dissent: Current Policy Too Restrictive, Advocates for Substantial Rate Cut

Federal Reserve Governor Miran has publicly articulated a dissenting view on current monetary policy, arguing that the federal funds rate is “very restrictive” and poses “material risks” to the Fed’s employment mandate. Speaking recently, Miran stated his belief that the appropriate fed funds rate should be in the mid-2 percent area, nearly two percentage points lower than the current policy.

Miran’s analysis, presented in his first public address as a Federal Reserve Board member, delves into a range of nonmonetary factors and recent policy shifts that he believes are underappreciated in conventional monetary policy assessments. He emphasizes that failing to account for these dynamics could lead policymakers to misjudge the true restrictiveness of current rates.

Key pillars of his argument include:

• Rent Inflation: Miran projects a significant decline in CPI rent inflation, from roughly 3.5 percent to below 1.5 percent by 2027, partly driven by recent shifts in immigration policy. This disinflationary trend, he argues, implies a lower appropriate fed funds rate.
• Neutral Rate (r*): He identifies strong downward pressure on the neutral rate of interest (r*) due to changes in border policies leading to reduced population growth, and increases in national saving spurred by recent trade renegotiations and tax legislation. While deregulation and energy policies could slightly raise r*, the net effect is a substantial reduction.
• Output Gap: Miran notes that recent tax laws are boosting actual output, while deregulation and energy policies are expanding potential output. He calculates that these factors contribute to a smaller output gap, further supporting a lower policy rate.

Governor Miran concludes that keeping short-term interest rates “roughly 2 percentage points too tight risks unnecessary layoffs and higher unemployment.” His remarks signal a significant divergence from the prevailing consensus within the Federal Open Market Committee, urging a reevaluation of economic models to incorporate the real-time impact of evolving fiscal, trade, and immigration policies on the economy.

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