New Fed governor Stephen Miran defends calls for steep interest rate cuts

Calls for large cuts remain out of consensus among rest of Federal Reserve

Fed governor Stephen Miran said interest rates are too high and wants to lower them aggressively to protect the labour market. Getty Images

Newly confirmed Federal Reserve governor Stephen Miran argued for steeper rate cuts on Monday, although his views remain contrary to those of the rest of the central bank.

Mr Miran was the lone dissenter during last week's rate decision meeting that lowered the Fed's benchmark target range by a quarter point to 4 to 4.25 per cent. Mr Miran had advocated for a rate cut of 50 basis points.

In his first major policy speech since being confirmed to the Fed board last week, Mr Miran said interest rates should be almost half of where they are today.

“I believe the appropriate Fed funds rate is in the mid-two per cent area, almost two percentage points lower than current policy,” he said in remarks at the Economic Club of New York.

Mr Miran said that leaving “short-term interest rates roughly two percentage points too tight risks unnecessary layoffs and higher unemployment”.

Labour market concerns were the main thrust behind the Fed's reasoning to cut rates last week, with data showing signs of a slowing economy, but large-scale reductions, such as the ones Mr Miran is seeking, are typically employed during times of economic distress.

President Donald Trump nominated Mr Miran, who is on leave from the White House's Council of Economic Advisers, to serve on the Fed board in a temporary capacity, ending in January. The President has repeatedly attacked the central bank this year for not aggressively reducing rates.

Mr Miran said Mr Trump has never asked him to set policy in a specific way.

Updated forecasts from the Fed released alongside its rate decision last week also showed Mr Miran is alone in his opinion. The so-called dot plot showed that he believes rates should be cut by another1.25 per cent this year, well below the other 18 members on the Federal Open Market Committee.

The Federal Reserve's dot plot shows most members on the US central bank anticipate interest rates will fall to about 3.6 per cent by the end of 2025. Screengrab / Federal Reserve

Public remarks from other Fed officials on Monday further underscored the difficulties Mr Miran faces in gaining support.

St Louis Fed president Alberto Musalem, a voting member this year on the rate-setting FOMC, said there it “limited room for easing further” after last week's vote, as the nation's inflation level remained above the Fed's 2 per cent target.

Cleveland Fed president Beth Hammack expressed similar concerns over inflation during remarks on Monday, while Atlanta Fed president Raphael Bostic told The Wall Street Journal that he sees no further rate cuts this year. Neither are voting members on the FOMC this year.