Fed Gov. Miran makes the case for much lower interest rates

• Key Insight: Fed Gov. Miran cast doubt on the importance of key figures the central bank relies on to make its monetary decisions, arguing that immigration and trade policies will reduce inflation.
• Expert quote: “In my view, insufficiently accounting for the strong downward pressure on the neutral rate resulting from changes in border and fiscal policies is leading some to believe policy is less restrictive than it actually is,” Fed Gov. Miran said.
• What’s at stake: Fed Gov. Miran stated that he wants the federal funds rate to be 2% — roughly half the current rate — and laid out his argument, which he will likely reprise at upcoming Federal Open Market Committee meetings.

Federal Reserve Governor Stephen Miran cast doubt on some of the key figures the central bank uses to guide monetary policy in one of his first public speeches since his confirmation.

Speaking Monday at the Economic Club of New York, Miran said the Fed has focused too narrowly on inflation and the output gap as key variables for setting policy. He argued that changes to the broader economy have brought with them changes toward how central bankers should consider the neutral rate — the policy rate that neither stimulates nor slows the economy. Those changes have been “underappreciated,” Miran said, leading to misjudgments about how tight or loose policy really is.

The newly confirmed Fed governor said that current monetary policy is “very restrictive” and that it “poses material risks to the Fed’s employment mandate,” noting that the federal funds rate should be near 2% — about half its current level.

In Miran’s view, the Fed “insufficiently accounted for” the effect of high rates of immigration and net national savings in its monetary policy, leading the central bank to make policy choices they believed there sufficiently accommodative at the time but in retrospect were more restrictive. Miran argued that the same dynamic may be at play now, but in reverse.

“In my view, insufficiently accounting for the strong downward pressure on the neutral rate resulting from changes in border and fiscal policies is leading some to believe policy is less restrictive than it actually is,” Miran said.

Prior to joining the Fed in mid- September, Miran chaired the White House Council of Economic Advisers, from which he is currently on leave.

Referencing border policy changes under President Donald Trump, Miran said a decline in immigration will reduce pressure on housing prices — a reduction that could contribute to downward costs for rents, which represent a significant proportion of overall consumer expenditures. 

“Net immigration averaged roughly 1 million per year in the decade leading up to the pandemic,” Miran said. “Given that roughly 100 million Americans rent, net zero immigration going forward would imply 1 point lower rent inflation per year.”

Miran, one of the architects of the Trump administration’s trade policy, also pushed back against critics of tariffs, saying trade renegotiations have sparked “unreasonable levels of concern,” and that tariffs can be a net positive for the economy.

“While my read of the elasticities and incidence theory is that exporting nations will have to lower their selling prices, I also believe tariffs will lead to substantial swings in net national saving,” Miran said. “The Congressional Budget Office estimates tariff revenue could reduce the federal budget deficit by over $380 billion per year over the coming decade.”

He added that the models the central bank relies on “doesn’t do a great job incorporating policy changes of the type I’ve discussed.”

“I suspect existing backward-looking estimates are too high because they insufficiently account for recent changes to fiscal and border policies that are depressing,” he noted. “Leaving short-term interest rates roughly 2 percentage points too tight risks unnecessary layoffs and higher unemployment.”

Immigration policies and the impact of tariffs have been cited by members of the Federal Open Market Committee as reasons for keeping policy unchanged through late 2024.

In mid-September, amid signs that the job market is softening, the Fed cut interest rates by 25 basis points. Miran was the only Trump-appointed member to dissent, calling instead for a 50-basis-point cut. The other 11 members — including Trump-appointed governors Christopher Waller and Michelle Bowman — supported the quarter-point move.

Nine members of the Federal Open Market Committee said in their quarterly economic projections last week that two more 25-basis-point rate cuts remain possible later this year, though another six members viewed September’s 25bps cut as the last one for 2025.