Miran argues Fed rates pose risks to employment, should be roughly 2 points lower

Core Viewpoint - New Federal Reserve governor Stephen Miran advocates for a reduction in interest rates by approximately 2 percentage points, arguing that current rates are excessively high and could harm the US economy [1][2]. Group 1: Interest Rate Policy - Miran believes the appropriate level for the Fed's policy rate should be in the mid-2 percent range, significantly lower than the current 4.0% to 4.25% [1]. - He has proposed five additional rate cuts for this year, contrasting with the median expectation of two cuts for 2025 among his colleagues [2]. Group 2: Immigration and Economic Impact - Miran highlights a shift in US border policy, suggesting that reduced immigration is not being adequately factored into economic assessments, which may lead to misconceptions about the restrictiveness of the Fed's policy rate [3]. - He anticipates that up to 2 million illegal immigrants may leave the country by year-end, potentially lowering annual population growth from 1% to 0.4%, which could exert downward pressure on inflation [4]. Group 3: Inflation Expectations - Miran predicts that rent inflation in the Consumer Price Index will decrease from approximately 3.5% to below 1.5% by 2027, which would correspond to a 0.3 percentage point decline in the Fed's preferred inflation measure, the Personal Consumption Expenditures Index, currently at 2.9% [5]. - He emphasizes the importance of maintaining the Fed's 2% inflation target while cautioning against overly restrictive policies that could jeopardize employment [5]. Group 4: Colleague Perspectives - St. Louis Fed president Alberto Musalem supports recent rate cuts as a precautionary measure to mitigate unemployment risks but warns of limited capacity for further cuts without risking inflation [6].