In remarks that have captured the attention of financial markets and economic analysts, Federal Reserve Governor Stephen Miran issued stark warnings about the direction of monetary policy in the United States. Miran asserted that the US central bank is now obligated to implement a significant interest rate cut exceeding 100 basis points, indicating that maintaining current rates could stifle economic growth.
Restrictive monetary policy and its impact on the economy
In his remarks, Miran clarified that describing the current monetary policy as "neutral" is inaccurate, deeming it clearly "restrictive." This statement comes at a sensitive time, as investors await any signals regarding a relaxation of monetary tightening. He added that high borrowing costs are crippling the economy, justifying the need for swift action to reduce interest rates in the coming period to ensure the continued operation of production and investment.
Background of the battle against inflation
To understand the context of this call, one must consider the recent historical background. Since 2022, the Federal Reserve has been waging one of its fiercest battles against inflation, which has reached record levels not seen in decades. This has prompted the Fed to raise interest rates at an accelerated pace to curb inflation. However, Miran points out that core inflation is now approaching the Fed's 2% target, meaning that maintaining high interest rates is no longer as strongly justified as before and could even become a risk factor that threatens to push the economy into an unwanted recession.
Expected economic repercussions
A cut in interest rates of more than 100 basis points, as Miran suggests, would have far-reaching effects both domestically and globally. Domestically, it would reduce the cost of mortgage and commercial loans, stimulating the housing market and business expansion. Globally, lower US interest rates typically weaken the dollar, easing pressure on emerging market currencies and supporting dollar-denominated commodities such as gold and oil. Miran warned that the Fed's failure to take this step and lower short-term borrowing costs could upend the outlook for strong economic growth this year.
The future of the Federal Reserve presidency
In a related matter concerning the future leadership of the central bank, Miran addressed the issue of succeeding Jerome Powell, the current Federal Reserve Chairman, whose term ends next May. Miran denied any intention of running for the position, noting that US President Donald Trump has a list of well-qualified candidates to lead monetary policy in the coming period, which adds a significant political dimension to the Fed's anticipated decisions.
