Fed’s Miran Defends Push for Steeper Rate Cuts Despite Elevated Inflation

Stephen Miran. (Michael Nagle/Bloomberg)

Key Points

• Federal Reserve governor Stephen Miran favors more aggressive interest rate cuts despite inflation exceeding the 2% target.
• Miran believes inflation data overstates underlying price pressures, reflecting outdated measures rather than current economic conditions.
• Miran dissented at last week’s Fed meeting, calling for a half percentage point rate cut instead of the approved quarter-point reduction.

Federal Reserve governor Stephen Miran offered a defense of why he believes the central bank should cut interest rates more aggressively, even with inflation still running above its 2% target.

Speaking at Columbia University on Monday, Miran said inflation data are overstating underlying price pressures and reflecting outdated or distorted measures rather than current economic conditions. That view underpins his dissent at last week’s Fed meeting, where he called for a half-percentage-point rate cut instead of the quarter-point reduction approved by the Federal Open Market Committee.

Miran has attended three policy meetings and dissented for a larger interest-rate cut each time.

The Fed lowered its benchmark interest rate last week but signaled caution about the pace of future cuts, citing persistent inflation. Miran has emerged as the most outspoken internal critic of that approach, arguing that policy remains too restrictive and risks unnecessary damage to the labor market.

At the core of Miran’s case is housing inflation, which accounts for a large share of the Personal Consumption Expenditures Price Index, the Fed’s preferred inflation gauge. Official measures, said Miran, continue to reflect rent increases from the postpandemic housing surge, even though market rents for new tenants have been flat or falling for roughly two years.

Because many leases reset slowly, housing inflation in the data lags behind real-world conditions, Miran said, creating the appearance of continuing price pressure where little exists. He argued that this “after-echo” of earlier supply shortages is masking faster progress toward price stability.

Miran also questioned parts of the inflation data that rely on imputed prices rather than observed transactions, particularly in services. Portfolio management fees, which the government calculates based on asset values rather than actual fees paid, add to that, he said. Rising stock prices can make those costs appear to increase even when underlying fees are falling, he noted. Miran warned that responding to those figures risks tightening policy based on statistical noise rather than imbalances between supply and demand.

Market-based measures of inflation excluding housing suggest price growth is already near the Fed’s target, said Miran.

Monetary policy is slow to affect the economy, he argued, and the central bank should be setting rates based on where inflation is headed. “Given monetary policy lags behind, we need to make policy for 2027, not 2022,” Miran said.

The speech comes as disagreement within the Fed grows over how quickly to ease policy. Some officials have argued inflation remains too high to justify faster cuts, while others worry that holding rates elevated for too long could trigger an economic slowdown.

President Donald Trump has repeatedly criticized the Fed for keeping borrowing costs too high. He has pressed for faster easing, framing high rates as a drag on growth, markets, and household finances.

Miran, a top economic advisor of the president, is on unpaid leave from the administration while he serves at the Fed through January. While he didn’t refer to the White House in his remarks, his critique of how inflation is measured, and his insistence that price pressures are overstated, are often repeated by Trump allies.

Miran also played down concerns that tariffs are contributing to inflation. Most of the cost is borne by foreign exporters and any price effects will be modest and temporary, he argued.

Write to Nicole Goodkind at nicole.goodkind@barrons.com.