President Trump wants borrowing costs significantly lower, and his newest pick to join the Federal Reserve is ready to deliver.
In his first speech as a member of the Board of Governors, Stephen Miran said interest rates should be roughly 2 percentage points below current levels, or around 2.5 percent.
Mr. Miran warned that keeping interest rates elevated risks imperiling the labor market, which is already showing signs of cooling.
“Leaving short-term interest rates roughly 2 percentage points too tight risks unnecessary layoffs and higher unemployment,” he said.
His comments came in the wake of Mr. Miran’s decision to vote against the Fed’s decision last week to lower rates by a quarter point. Mr. Miran, who was sworn into his job just minutes before the Fed’s meeting began, said he wanted to do a larger, half-point cut. Interest rates are now in a range of 4 percent to 4.25 percent.
Mr. Miran focused his remarks on estimates of what economists call “R-star,” which refers to the level of interest rates that neither speeds up the economy nor slows it down. He argued that immigration restrictions and higher saving rates because of tariffs and the raft of tax cuts passed earlier this year had substantially lowered estimates.
“Moving too slowly to update a rapidly changing neutral rate raises the risk of policy mistakes,” said.
Mr. Miran’s analysis stands apart from his new colleagues, many of whom have argued that the neutral rate has in fact risen since the pandemic as supply chains have been rewired and the global economy has faced successive rounds of inflation shocks. In the latest projections released by the Fed last week, most officials thought that over the longer run, the neutral rate was around 3 percent.
That explains why, in part, many officials do not see scope for the Fed to lower interest rates substantially this year. The latest forecasts show that most policymakers expect another half a percentage point reduction by year-end, which would bring borrowing costs to a range of 3.5 to 3.75 percent.
Still, seven of the 19 policymakers penciled in fewer cuts this year, suggesting that there are a range of views about how much further to lower borrowing costs as inflation re-accelerates as a result of Mr. Trump’s tariffs and the labor market wobbles.
Mr. Miran on Friday confirmed he had penciled in a far lower forecast last week, supporting interest rates declining this year to between 2.75 percent and 3 percent. That would suggest big cuts at the two remaining meetings this year in October and December.
Colby Smith covers the Federal Reserve and the U.S. economy for The Times.
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