Fed Governor Stephen Miran speaks on the Federal Reserve with CNBC's Sara Eisen — 10/15/25

Key Concepts

• US-China Trade Relationship: The ongoing trade tensions and their potential impact on the economic outlook.
• Tail Risk: The probability of extreme, unexpected events, specifically a "left tail" event indicating increased downside risks.
• Monetary Policy Stance: Categorization of policy as restrictive, neutral, or accommodative, based on its effect on economic activity.
• Neutral Policy Rate (r*): The theoretical interest rate at which monetary policy is neither stimulating nor restricting economic growth.
• Population Growth Shocks: Rapid, significant changes in population growth rates, particularly due to immigration policy, impacting the neutral rate.
• Forecast-Dependent Policy: A monetary policy approach that prioritizes future economic projections over backward-looking data.
• Data-Dependent Policy: A monetary policy approach that primarily reacts to current and past economic data.
• Shelter Inflation: The component of inflation related to housing costs (rent, owner's equivalent rent), a significant driver of overall inflation.
• Catch-up Effect: The lag in how market rent changes are reflected in measured shelter inflation due to lease reset cycles.
• Fed Independence: The principle that the Federal Reserve should operate free from political influence to pursue its mandates.
• Mission Creep: The expansion of an organization's activities beyond its original core objectives, particularly concerning the Fed's mandate.
• FOMO (Fear Of Missing Out): A personal sentiment experienced by the speaker regarding his former role.

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Initial Assessment of the Economy and Role at the Fed

The newly appointed Fed Governor describes his experience as positive, working with a collegial group engaged in ongoing economic and policy debates. He notes a lot of "exciting work to do."

Impact of US-China Trade Tensions

The market is currently concerned about the US-China trade relationship, with "hostilities building again." The Governor states it's "too early to say whether it's impacting the economy now," but it represents a "potentially important change to the outlook."

He attributes economic weakness in the first half of the year partly to policy uncertainty, including a "biggest tax hike in history" and the "biggest rearrangement to global trading policy in half a century." Firms likely "held off on investing" and making decisions while waiting for tax bills and tariff rates to "shake out."

Initially, he operated under the assumption that this uncertainty had dissipated after the tax bill became law and trade deals were made (Geneva, London, Madrid). However, China's recent decision to "renegging on deals" has reintroduced this uncertainty. This development introduces a "new tail risk," making the "left tail a little fatter," and increasing "downside risks to growth." He emphasizes that policymakers must recognize this shift in the "balance of risks," even if it's "early to conclude that things are actually changing."

Monetary Policy Stance and the Neutral Rate

The Governor argues for a more urgent move to a "more neutral place in policy quickly." He believes current policy is "quite restrictive," making the economy "vulnerable to shocks." If the economy is hit with a shock while policy is restrictive, it will react differently than if policy were less restrictive.

Speaker's Dissenting View: He acknowledges his view is "out of consensus" with many colleagues, primarily on the speed of reaching a neutral stance. While others also aim for neutral, they prefer a slower pace. His rationale for quicker action stems from being "less concerned about upside inflation in the near future," which provides "flexibility and freedom" to act more swiftly.

Defining and Estimating the Neutral Rate: The "neutral policy rate" is defined as the rate at which monetary policy is "neither restrictive nor accommodary," akin to "coasting along." Below neutral stimulates, above restricts. He highlights the difficulty in observing neutral directly, as models provide "wide confidence bands." However, it's easier to reason about changes to neutral.

Shocks to the Neutral Rate: Traditionally, the neutral rate moves slowly, driven by factors like population growth (high growth -> high rates; low growth -> low rates). However, the economy has experienced "very substantial shocks in the last few years," which would normally take decades to unwind. Specifically, "sharp changes in immigration policy" led to the "largest population growth shocks in our lifetimes in both directions, upside and downside in rapid succession," compressing 30-40 years of change into just three. While acknowledging uncertainty about the exact neutral rate, he asserts that these observable drivers indicate recent movement.

Economic Indicators and Justification for Rate Cuts

The Governor justifies his call for less restrictive policy by pointing to economic weakness in the first half of the year, which he attributes to trade-related uncertainty and "other elements of core underlying domestic demand." He notes the labor market has "clearly weakened somewhat," with the unemployment rate "ticked up gradually." The housing market, a "biggest transmission channel of monetary policy into the real economy," has been "rather moribund for a while now on high rates/mortgage rates."

Bond Market Signals: He contrasts the bond market's reaction to Fed rate cuts:

• Last year: After a Fed cut, long yields rose by 30-110 basis points, indicating the bond market viewed the cut as a "mistake."
• This year (September cut): Long yields are down 4-5 basis points in 18 trading sessions, suggesting the bond market is "not telling us that we're wrong."

Future Rate Cut Expectations: The market is "fully pricing in two more cuts for the rest of this year," which the Governor finds "realistic" and consistent with the committee's median projections. For next year, he anticipates "less disagreement" on cuts, primarily a "speed thing."

Inflation Outlook and Forecast-Dependent Policy

The Governor argues that monetary policy must be "forecast dependent and not data dependent." He explains that data can be "quite backward looking," and since monetary policy works with a "lag" (typically 12-18 months), decisions today must be based on where the economy will be 1-2 years from now, not on past prices.

Drivers of Disinflation: He forecasts "substantial disinflation" from housing/shelter inflation, which constitutes about 45% of core CPI and half of core PCE. He highlights two primary reasons:

1. Catch-up Effect: Measured shelter inflation lags market rents because it's based on lease resets, not immediate market prices. A "substantial wedge" between market and measured rents meant a lot of "catch-up" was needed. This catch-up is "done," meaning measured inflation will now "catch down to where market rents is much closer now."
2. Immigration Story: Housing supply is relatively fixed. Changes in population (e.g., increased immigration) boost demand without an immediate increase in housing supply, leading to inflation. Conversely, reduced immigration would ease this pressure. He dismisses the idea that fewer immigrant workers necessarily lead to upward wage pressure, as reduced demand also accompanies reduced supply of labor.

Inflation and Unemployment Forecasts: He projects reaching 2% headline PCE inflation in "a year and a half from now or so," with unemployment "probably edg[ing] slightly down." He warns that if policy remains restrictive for too long, the Fed "will induce a slowdown in the economy."

Fed Independence and Political Involvement

The Governor stresses the "critical importance" of Fed independence to ensure policy decisions are made for "stable prices and maximum employment," insulated from political cycles. To maintain this, the Fed "has to be seen as non-political." He warns against "mission creep" into "heavily politicized subjects that are outside of its core mandate," such as climate change or racial politics, as this would threaten its independence.

He addresses the perception of him as "President Trump's guy from CEA advocating for lower rates," noting that appointing former CEA chairs to the Fed is a long-standing practice (e.g., Bernanke, Yellen, Greenspan). He also mentions the arduous confirmation process, which has significantly lengthened from three days in the 1980s to over 100 days currently. He avoids commenting on legal questions regarding presidential power to fire Fed officials, stating it's "a question for lawyers, not a question for me." He reiterates his commitment to staying in his lane of "economic analysis."

Investing in America and Gold's Significance

His economic forecast includes a "substantial increase in investment into the United States," driven by changes in tax and regulatory policy, credit guarantees from trade deals, and Foreign Direct Investment (FDI). He views tax/regulatory changes and credit guarantees as more consequential for monetary policy than FDI, as FDI tends to move the supply and demand of loanable funds by roughly the same amount.

Regarding gold's record high price, he states he doesn't "care" about it, as his mandate from Congress is "stable prices and maximum employment," not the value of gold. While acknowledging arguments about a "geopolitical risk premium" in gold, he doesn't see "substantial economic consequences" or similar risk premiums in other asset markets (e.g., stocks are not at a record high). He believes his previous role provided him with sufficient insight into geopolitics, making him less reliant on gold as a clue.

Conclusion/Main Takeaways

The Governor emphasizes the critical need for the Federal Reserve to proactively adjust monetary policy to a more neutral stance, given increased downside risks to growth stemming from renewed US-China trade tensions. He advocates for a forecast-dependent approach to policy, anticipating significant disinflation from housing and shelter components, driven by the completion of the "catch-up effect" and the impact of immigration on housing supply. He firmly believes in the importance of Fed independence, urging the institution to avoid "mission creep" into politicized areas outside its core mandate to preserve its non-political standing. While acknowledging the current economic outlook has not "materially deteriorated," he highlights the emergence of new, significant risks that necessitate a swift policy response.