The Fed has a lot of catching up to do, says new central banker Stephen Miran

By Bryan Mena, CNN

Washington (CNN) — Central bankers are underestimating how much pressure interest rates are putting on America’s labor market, said Federal Reserve Governor Stephen Miran, a staunch ally of President Donald Trump, on Monday.

“I view policy as very restrictive, (and) believe it poses material risks to the Fed’s
employment mandate,” Miran said during his first speech in his new role, at an event in New York. Miran was previously head of Trump’s Council of Economic Advisers, but has taken leave from that position to serve a vacated term on the Fed’s Board.

The Fed last week lowered borrowing costs for the first time since December to prevent the labor market from deteriorating, according to Chair Jerome Powell in a post-meeting news conference. But Miran says the Fed has a lot of catching up to do.

In his speech, Miran argued that the neutral rate of interest — a theoretical level of borrowing costs that neither stimulates or nor dampens activity — is actually lower than the consensus of economists suggests, meaning that interest rates are exerting too much pressure on the economy, in his view.

Miran said “some” aren’t sufficiently considering how Trump’s policies — such as his tax and spending bill and the administration’s ongoing crackdown on immigration — could be putting “strong downward pressure on the neutral rate.”

As a result, Miran believes that the Fed’s benchmark lending rate should be “almost 2 percentage points lower.” That’s eight quarter-point rate cuts, or four half-point cuts. The Fed typically only delivers large rate cuts in times of economic trouble.

Miran discussed the role of the Taylor rule in monetary policymaking, which is a guide central bankers use that factors in the neutral rate, inflation and measures of economic output. He laid out how Trump’s policies could be affecting the calculation of the Taylor rule in today’s economy.

During a moderated discussion, Miran described his first Fed meeting last week, noting as he had during a recent media interview that it was “cordial, it was collegial, it was friendly, it was respectful, and I was very appreciative of that,” Miran said. He added that his Monday speech is his attempt to begin persuading his colleagues to lower rates much more quickly.

“There’s a reason why policy rates are too high. It’s because there’s been substantial changes in immigration, there’s been substantial changes in tariff revenue, and these need to be incorporated into our economic models because they’re relevant for how monetary policy is set,” Miran said.

“That’s how I’m going to approach my time at Federal Reserve: to lay out my economic arguments as clearly and transparently as I can, and hope to persuade people by the force of the economics,” he said.

At a separate event on Monday, Cleveland Fed President Beth Hammack said in response to a question posed by CNN that she welcomes hearing unconventional views about the economy.

“I love unconventional perspectives. I love hearing from as many different people, different perspectives as I can. And for me, if I was just talking to people who got their way, I think it may be more comfortable, but I’m not learning anything,” Hammack said.

“When there are people in the room, whether it’s the monetary policy room, whether it’s our research staff who have different perspectives, I really welcome that, and I try to listen extra carefully,” she added.

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CNN’s Elisabeth Buchwald contributed to this report.