Interest Rates Are Still Too High, Says Stephen Miran (Full Q&A)

Federal Reserve Governor, Stephen Miran, speaks with Bloomberg at the Economic Club of New York.

Federal Reserve Governor Stephen Miran said interest rates are too high and made a case for lowering them aggressively in the coming months to protect the labor market.

In his first policy speech since being appointed to the central bank by President Donald Trump, Miran laid out a case for why the neutral rate of interest — where the policy rate neither stimulates nor weighs on the economy — has fallen.

That rate, which was likely overestimated in the past, has also been lowered recently by tariffs, immigration restrictions and tax policy, Miran argued. That means interest rates should be much lower to prevent damaging the economy, he said.

“The upshot is that monetary policy is well into restrictive territory,” Miran said Monday in prepared remarks for an event at the Economic Club of New York. “Leaving short-term interest rates roughly 2 percentage points too tight risks unnecessary layoffs and higher unemployment.”

The Fed’s newest official participated in last week’s Federal Open Market Committee meeting, where policymakers lowered interest rates by a quarter percentage point for the first time since December, to a range of 4-4.25%. Miran, who was appointed to fill a vacancy on the board, dissented, preferring instead to lower rates by a half percentage point.

Miran served as chair of the White House Council of Economic Advisers and is taking an unpaid leave of absence from that role while serving at the Fed. His term as governor expires at the end of January.

Miran wants to cut rates by another 1.25 percentage points at the two remaining FOMC meetings this year, he said Friday. By contrast, the median projection of the Fed’s 19 officials has them lowering rates by another half percentage point.

Miran outlined several ways in which he believes the neutral rate of interest is lower now. A sharp decrease in immigration, revenue from tariffs and increased economic growth from this year’s tax legislation should all press that rate lower, he said.

“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,” he said.

Some policies, like lifting regulations — which he said are a “material impediment to growth —” might boost the neutral rate, but the fiscal policies are likely significantly lowering the neutral rate, Miran said. He also incorporated market-based measures of the rate into his projections.

His estimate of neutral, around 2.5%, is now much lower than the median Fed official’s projection of 3%, though several other policymakers also project that the neutral rate is under 3%. Still, Miran is the only one calling for getting there quickly.

While some of his colleagues are concerned about inflation, which is still not down to the Fed’s 2% target, Miran in television appearances on Friday downplayed worries about tariff-induced price pressures.

Earlier on Monday, St. Louis Fed President Alberto Musalem said he supported last week’s rate cut but cautioned that he sees limited room for more reductions, and only under certain circumstances.

“Should further signs of labor market weakness emerge, I would support additional reductions in the policy rate, provided the risk of above-target inflation persistence has not increased and longer-term inflation expectations remain anchored,” said Musalem.

Atlanta Fed President Raphael Bostic, in an interview published Monday in the Wall Street Journal, said he was hesitant to declare his support now for another rate cut when policymakers gather Oct. 28-29 in Washington.

“I am concerned about the inflation that has been too high for a long time,” Bostic said in the interview. “And so I today wo

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