Fed’s Miran: I favor three, maybe four cuts this year
Stephen Miran, a member of the Federal Reserve (Fed), spoke in a moderated discussion about the United States (US) monetary policy at the Reinventing Bretton Woods Committee Global Macro Sessions in Washington, DC, on Thursday. He said that the Fed must remain cautious, emphasizing that inflation risks are not fully resolved and that policy decisions will continue to depend heavily on incoming data.
Key takeaways
I favour three, maybe four cuts this year.
A year from now, 12-month PCE could be around the 2% target.
At this point, I don't think that the energy shock has changed the outlook for inflation 12 to 18 months from now compared to before the war.
At this point might only see three cuts for the rest of the year.
No evidence of a wage-price spiral developing; long-term expectations are anchored
Still reasonable to expect core goods price and housing inflation to continue to come down.
Even before the war, the underlying composition of inflation was getting more problematic for the Fed.
The war has increased the distribution of risks around the modal outlook.
Attributing goods inflation to tariffs is unwarranted.
It is irresponsible to blame tariffs for an array of forces that have driven prices higher.
There is no reason to believe the cooling trend in labor is not continuing.
At this point, I feel that the Fed should be heading to a neutral rate estimated as low as 2.5%.
The neutral policy rate is about 0.5% in real terms.
Economic growth and the unemployment rate have not been as closely correlated as in the past; causes are uncertain, but could relate to AI.
Shifts in consumer spending due to energy prices are a drag on growth, despite the US being an energy exporter.”
Fed FAQs
Monetary policy in the US is shaped by the Federal Reserve (Fed). The Fed has two mandates: to achieve price stability and foster full employment. Its primary tool to achieve these goals is by adjusting interest rates. When prices are rising too quickly and inflation is above the Fed’s 2% target, it raises interest rates, increasing borrowing costs throughout the economy. This results in a stronger US Dollar (USD) as it makes the US a more attractive place for international investors to park their money. When inflation falls below 2% or the Unemployment Rate is too high, the Fed may lower interest rates to encourage borrowing, which weighs on the Greenback.
The Federal Reserve (Fed) holds eight policy meetings a year, where the Federal Open Market Committee (FOMC) assesses economic conditions and makes monetary policy decisions. The FOMC is attended by twelve Fed officials – the seven members of the Board of Governors, the president of the Federal Reserve Bank of New York, and four of the remaining eleven regional Reserve Bank presidents, who serve one-year terms on a rotating basis.
In extreme situations, the Federal Reserve may resort to a policy named Quantitative Easing (QE). QE is the process by which the Fed substantially increases the flow of credit in a stuck financial system. It is a non-standard policy measure used during crises or when inflation is extremely low. It was the Fed’s weapon of choice during the Great Financial Crisis in 2008. It involves the Fed printing more Dollars and using them to buy high grade bonds from financial institutions. QE usually weakens the US Dollar.
Quantitative tightening (QT) is the reverse process of QE, whereby the Federal Reserve stops buying bonds from financial institutions and does not reinvest the principal from the bonds it holds maturing, to purchase new bonds. It is usually positive for the value of the US Dollar.
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